It's sort of a variation on the loan collection business, which is a fair-sized business in the U.S. The loan collection business is where companies which go to other businesses which extend credit direct to their customers, like auto dealers, or let people use now and pay later, like phone companies, and who have customers who have not been paying and seem unlikely to pay. The loan collection company will buy the overdue collections for ten cents on the dollar. The collection company then calls the customers and tries to collect the money, and try to recover more than they paid. By aggressively focusing on collection they hope to squeeze the money out of the consumers and make a profit.

Tim Geithner's plan to save our banks was to let them sell their bad debt to third parties who will then try to collect or collateralize or remortgage it. The banks may have foreclosured properties for which, when they try to sell them, they would get a lot less than the value of the mortgage. A new industry similar to the loan collection business would take the toxic waste and convert it into something of some value.

At the same time that this was happening, the banks were lobbying the Financial Accounting Standards Board (FASB) to blow up their rules, "mark to market", that the banks had to list the toxic assets on their balance sheets at their real market value. But the banks want to keep the assets at their original, like the original value of a mortgage, not the much reduced value. That makes the banks look profitable, it helps their stock price, to which the executives' compensation is tied. That's why the executives are particularly interested in continuing this scam. If the banks had to won up to the reduced value of their assets - if they had to mark their assets to the market - they are in big trouble.

But here's the weird thing. If they want to sell those toxic assets, once they sell them, they go on their balance sheet at whatever they sell them for. So Geithner says we are going to help sell them in the market place, and the market place values them at a much reduced rate, low enough that they should be able to make a profit out of them. Tim Geithner wanted free enterprise to solve the problem with the banks. But the minute the banks sell, their balance sheets go south and they suddenly look as if they are not profitable. The emperor has no clothes and suddenly everybody realizes it.

What Geithner has been trying to do ever since the last year of the Bush administration, and tragically they are continuing to do into the Obama administration, is pretend that the emperor - the banks - actually has some very nice clothes; some decent assets. So the banks were refusing to sell these toxic assets.

If you want the whole story, Robert Kuttner has a great blog about this over at Huffington Post. The bottom line is that FDIC, the Treasury, the Federal Reserve, the whole thing, they were going to split the whole thing 50-50, the government was going to guarantee the losses, the government would put up to 94% of the capital if private investors would put up only 6%, so there was no risk at all to the equivalent of the collection agency companies buying this crap off the balance sheet of the banks. It was a good deal, a good idea for them. The problem was that the banks succeeded, as we talked on the show about when it happened, in getting the federal government to stop forcing them to use mark to market accounting principles.

What it is doing is that they are trying to keep the house of cards intact, but I'm telling you, the smallest wind is going to knock it over. This is a really bad sign for the future of the economy, unfortunately.

But on the other hand, there is an incredible opportunity in this; something we all should know about and all should get on. Listen to today's podcast to hear what that is.

Paine was the original progressive, very progressive by today's standards, left of FDR. Glenn Beck is rewriting "Common Sense", reinventing him as a conservative icon. He is in Philadelphia, Paine's city; tonight he will be at a university panel about Paine. He arrived last night, went today to Independence Square, went to lots of places, could not find any reference to Paine. "Rights of Man" was a progressive thesis, but the "Age of Reason" openly embraced atheism so he was blackballed. For Paine it was Deism. He rejected the authority of churches and clerics. Ben Franklin brought his memory back. Paine pushed for political democracy. In 1790-2 he laid out his vision for social security. "Agrarian Justice" argued for the taxing of the landed rich to provide stakes for everyone at 21 to set themselves up, and for pensions for the elderly. Under Reagan lots like Glenn Beck were trying to lay claim to him. His books have never been out of print, so Glenn Beck knows how powerful he is. What would he be most concerned about now? The role of America in the world, and the gross inequality that has emerged over the last 30 years. Bailouts is like giving money to aristocrats. There were no political parties at first. With Democrats like these who needs Republicans? Thom is a great voice for tradition.