Is that so? It's not clear why. The law authorizes the FDIC to take over bankrupt banks. Under the law passed by Congress, the FDIC is supposed to take over Citigroup, Bank of America and other zombie banks.

It's likely that the FDIC would not have enough money to pay for cleaning up these zombies, especially if it pays off the banks' bondholders. (It has no legal or moral obligation to pay these bondholders, unlike FDIC-insured deposits.)

The Fed could almost certainly lend the FDIC the necessary money, as it is doing under the Geithner plan. The Fed can pretty much do whatever it wants, so it is not clear why anyone would think it could give money to subsidize banks through the Geithner plan, but not to clean up the banks' mess.

Of course, the other story is interesting also. Suppose that the FDIC seized the bankrupt banks and lacked the funds to clean up the mess. Would the Republicans allow the banks' bondholders to get cleaned out? That doesn't seem likely, but it might be fun to watch.

The underreported "fact is that the banks and their political allies have lied to the public continuously throughout this crisis to get more taxpayer money for their pockets. It is irresponsible to take anything these people say at face value at this point." See the FAIR magazine Extra!: "Going All Out for Bank Bailout: Media Paint Crisis as Too 'Urgent' for Skepticism" (1/09) by Dean Baker & Kris Warner

So it was refreshing to see Michael Hirsh's piece in Newsweek wondering why left-leaning Columbia economist Joseph Stiglitz hasn't been in the mix:

But lost amid the cascades of ticker tape is the fact that, astonishingly, you didn't hire the one expert who's been right about the financial crisis all along--and whose Nobel Prize-winning ideas will probably be most central to fixing the global economy.

In Hirsh's mind, Stiglitz has a solid record that would recommend him in the current crisis--namely, that he saw much of it coming, unlike some of Obama's other advisers (specifically media favorite Larry Summers):

Stiglitz, more than anyone on the Washington scene, was the biggest fly in the ointment of "free-market fundamentalism" pressed on the world in the '90s by Summers, Geithner and their mentor, former Treasury secretary Robert Rubin—advice that has now contributed to the worst financial crisis since the Great Depression.

That perspective was seconded by New York Times columnist Frank Rich on Sunday (12/7/08), who wondered if we are seeing a replay of Kennedy's "best and brightest" team of advisers:

No, it’s the economic team that evokes trace memories of our dark best-and-brightest past. Lawrence Summers, the new top economic adviser, was the youngest tenured professor in Harvard’s history and is famous for never letting anyone forget his brilliance. It was his highhanded disregard for his own colleagues, not his impolitic remarks about gender and science, that forced him out of Harvard’s presidency in four years. Timothy Geithner, the nominee for treasury secretary, is the boy wonder president of the Federal Reserve Bank of New York. He comes with none of Summers's personal baggage, but his sparkling résumé is missing one crucial asset: experience outside academe and government, in the real world of business and finance. Postgraduate finishing school at Kissinger & Associates doesn’t count.

Summers and Geithner are both protégés of another master of the universe, Robert Rubin. His appearance in the photo op for Obama-transition economic advisers three days after the election was, to put it mildly, disconcerting. Ever since his acclaimed service as treasury secretary in the Clinton administration, Rubin has labored as a senior adviser and director at Citigroup, now being bailed out by taxpayers to the potential tune of some $300 billion. Somehow the all-seeing Rubin didn’t notice the toxic mortgage-derivatives on Citi’s books until it was too late. The Citi may never sleep, but he snored.

Geithner was no less tardy in discovering the reckless, wholesale gambling that went on in Wall Street’s big casinos, all of which cratered while at least nominally under his regulatory watch. That a Hydra-headed banking monster like Citigroup came to be in the first place was a direct byproduct of deregulation championed by Rubin and Summers in Clinton’s Treasury Department (where Geithner also served). The New Deal reform they helped repeal, the Glass-Steagall Act, had been enacted in 1933 in part because Citigroup's ancestor, National City Bank, had imploded after repackaging bad loans as toxic securities in the go-go 1920s.