Is it time to shelve all of the plans for resolving the banks and just go back to a plan that we know works? Consider what’s transpired over the past couple days.

·         Tim Geithner says over the weekend that he will be the arbiter of whether or not the banks can pay back their TARP funds.

·         The NYT reports that the administration is thinking about converting its preferred equity to common.

·         The Inspector general charged with overseeing TARP indicates that he is already investigating fraud cases.

·         The Washington Post reports that Treasury Department lawyers have determined that participants in PPIP may be subject to the compensation limits imposed by Congress on TARP recipients, thus dooming participation by anyone with an ounce of sense.

·         Felix Salmon points out that Tim Geithner probably doesn’t have the authority to stop banks from repaying TARP money.

·         Clusterstock reports that the bank “stress test’ may be biased in favor of the Wall Street Banks and against the regional and community banks. 

·         The WSJ says the entire exercise is devolving into a “backdoor nationalization.”

And we aren’t even to Wednesday! Do you get the feeling that you’re watching a slow motion car wreck or maybe it’s like a horror movie where you scream at the heroine not to open the closet door even as you know that’s exactly what she’s going to do.

From the outset the Obama administration has been trying to build a rescue plan on a base of sand. In their defense, they inherited TARP and were convinced themselves that they had to work from that framework. Unfortunately, TARP was a singularly bad piece of legislation, conceived in panic and not subjected to the rigors of debate that it required. It shouldn’t be a surprise that it and the follow-on programs bolted onto it are collapsing under their own weight.

The Journal suggests once again that the way through this is to resolve the banks one by one via the FDIC and a resolution agency that would hold their assets and dispose of them over time. They have been advocating this old-fashioned solution for two years as have been many others including your humble blogger. 

This means that the Obama administration is going to have to go back to Congress and ask for money, something they are loath to do for several reasons. First, it will be a fight but it is one they can win. Second, the sums are likely to be so large that they will have to table some of their more ambitious plans for health, education and energy. That’s a shame because some of their ideas have merit but they can’t take center stage right now.

It’s time to put all of this fumbling aside and resolve the mess with tools we know how to use.