Meredith Whitney says the banks will need to raise another $40 billion after they get through reporting the horrors of Q4. Then they’ll have to report the horrors of Q1. And Q2. And so on. And before long, we’ll be at the end of 2009, and the banks will have sucked down tens of billions more of taxpayer money and they’ll still be hoarding it because they don’t have enough and there’s no one to lend it to anyway…
Enough already. Time to fix the banks. Once we do that, we can worry about how to also fix the folks banks might eventually lend money to (consumers and businesses). But first let’s fix the banks.
Here’s how to do it:
- Force the banks to write all assets down to nuclear-winter levels. ALL assets. Not just the assets that happen to be plummeting in value this quarter. Tell the banks to value their assets using Nouriel Roubini’s forecasts as gospel. Then take another 25% discount just for good measure.
- Rinse all this bilge through the bank income statements and let it destroy their balance sheets. Wipe out the stockholders. Wipe out as many of debtholders as you would if the company had just gone bankrupt and all that was left over was the assets that remain on the balance sheet.
- Once the sewage flood subsides, assess how much capital each bank needs.
- Provide this capital, via a preferred or debt security senior to ALL OTHER STAKEHOLDERS.
- Convert the taxpayer security into common stock and sell it to public shareholders. Did you see how bananas everyone went over Heritage, that startup bank that went public recently with no balance sheet baggage? The same will happen here. Investors don’t hate banks. They hate CRAP banks. Given them some some GOOD banks to buy, and they’ll go bananas.
Yes, this move will zero out the stockholders. Yes, this move will take a huge bite out of the bondholders. So what. No one forced them to buy those securities. No one forced them to make terrible loans and buy awful securities. That’s what capitalism is all about.
What’s different about this than what we’ve done so far? It forces the banks to do what they will eventually end up doing anyway, which is clean up their balance sheets once and for all. Not in five years. Not next year. Now.
Once the garbage is gone and banks have plenty of capital, they’ll have nothing to do but start putting it to work again. And their new owners will enjoy the ride.
See Also: Meredith Whitney: Banks Still Screwed
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