This reads like a replay of a strategy employed by the old FSLIC under Patrick Gray. It was a strategy undertaken in desperation: the S&L insurance fund was broke, illiquid, and without prospects for replenishment from the usual source - assessments on member institutions - because of the depth of the S&L crisis. Failed S&Ls were either not selling or selling at huge discounts, resulting in unsustainable losses for the already and increasingly inadequate S&L insurance fund. Gray and FSLIC staff came up with a strategy of selling tax loss carry forwards packaged with the failed institutions' other assets, and the strategy worked wonderfully from the perspective of the FSLIC. Failed S&L resolutions flowed again, at minimum cost to the FSLIC insurance fund. They could do their job again as they understood it: triage the wounded and dying S&Ls, help return housing markets to normalcy.

In the summer of 1984 (as I recall) the CBO (or OMB) alerted Congress to the future cost to the Treasury of this strategy. The Chairman of Ways and Means (again as I recall) wrote to Patrick Gray and strongly suggested the FSLIC desist making any more such deals until after that fall's election and rump Congress because he intended to implement a change in law in the next Congress. Gray and the FSLIC complied - until the last week of the year, when they approved 6 more deals. The Chairman and his allies in Congress were furious and in the next Congress not only closed the loop hole, they abolished the FSLIC.

Given the ginormous insured banks already failed or on life support, I think this was one of several measures to protect the FDIC insurance fund, including increased regular assessments on bank deposits, and the 10 bp extra premium for the additional, unlimited insurance on non-interest bearing transaction accounts.

Overall, lots of money is being spent and committed to provide stability and improve prospects for a quicker economic recovery. The overall approach combines Paulson's ruthless deal-making with Bernanke's academic expertise regarding efficacy of governments' efforts to combat deflation and monetary contraction. Bernanke seems like the right person at the right time. Paulson is a shark and is ripping off some huge bites for the Treasury and tax payers.

Allowing Lehman to fail was a huge mistake fomented IMO by the libertarian-leaning, fundamentalist conservative ideologues in the administration - the swarm Paulson swims with. (They didn't adequately consider the adverse impacts in the integrated, world financial system.)

Ultimately I expect the new Congress and Administration will re-consider this stop gap windfall for (mostly) financial giants. Hopefully along with something to roll back the excessive concentrations in finance emerged not only from this crisis but also from decades of careful, committed lobbying and envelope-pushing by the money center banks and their friends.