The National National Bank

What if the government takes over the banks that are in trouble? Remember, not all of them are.

What if banks in trouble get eaten by the FDIC?

Will you, the poor harried, victimized, put-upon taxpayer have to foot the bill for all the bad debts those banks have run up? NPR had an expert on the radio this morning speaking to that subject, an economist from the University of Chicago, no less. Raghuram Rajan said yes, you will have to pay all the bad banks' bad debts.

But another frequent NPR guest and economist, Dean Baker, points out that that's not true, that the government has no legal liability to cover the bad debts of bankrupt banks.

Baker reminds us that the FDIC historically has re-compensated depositors and bond holders when banks couldn't cover them, but adds the FDIC "would be under no legal obligation to repay all of this debt at 100 cents on the dollar."

So when the bank nationalization thing starts to heat up and get closer and you're debating and arguing with right-wingers who are going bananas over this, don't let anybody tell you that if the government takes over the zombie banks, that the taxpayers will be stuck for trillions and quadrillions and quintillions of dollars.

It just ain't true, Joe, if for no other reason than banks like WAMU ran up such incredible debts that paying off at face value would represent more money than ever existed in the history of the world.

As usual, a wave of the scoop to the indefatigable Atrios for this.