Nemo at Self Evident makes a convincing case that Bernanke and Geithner are not doing anything but trying to protect the incumbent banking giants.

I agree. While we need a functioning credit system, there is no need for the current banks to continue to exist in their current form, and the Fed and Treasury’s frantic effort to keep these banks on life support is a detriment to the rest of the economy:

If I were in charge and I wanted to prevent banks from failing at all costs, what might I do?

I might relax mark-to-market accounting. This would allow assets to be carried at inflated valuations, both for purposes of regulatory capital requirements and for purposes of getting loans from the Fed.

I might provide non-recourse loans to private equity to create inflated marks where mark-to-market still applies.

I might try to convince the FDIC to exercise forbearance in seizing banks. Of course, the primary day-to-day mission of the folks at FDIC is to preserve the integrity of their insurance fund. So they might object to my suggestion. I might have to give them assurances that they will have the necessary resources should my great plan fail. A $500 billion credit line from the Treasury, say.

If the FDIC agreed, they might suddenly go from 3-4 bank seizures per week to 0-1 per week.

Once my plan leaked to certain troubled banks, they might suddenly halt their attempts to raise capital at $0.20/share.

And of course, once Wall Street got wind of it, shares in financial companies would rocket higher.

Let me know if you notice anything like this happening.

Good point, and good snark.