Geithner Still Mulling Details Of Lousy Banking Fix


The Administration has pushed off its speech on how to fix the banks until tomorrow, ostensibly because it doesn’t want to distract from the ongoing stimulus discussions–and more likely because it still hasn’t decided what to do.

The latest brainstorm is to guarantee crap assets so private investors can buy them instead of the government. This is presumably designed to reduce the headline-driven outrage about how the banks are getting bailed out at taxpayer expense.  But of course they still will be.

If the government is going to guarantee trash assets, there’s no reason for banks to sell them. And if the banks do choose to sell them, then the bailout gains will just go to the companies that buy them instead of to the banks themselves. Regardless of who owns the trash assets, meanwhile, the taxpayers will still get socked with the losses.

The Administration continues to go to astonishing lengths to avoid doing what should be done–force the banks to acknowledge that the assets are only “bad” because the banks are claiming that they’re worth much more than they’re actually worth.  This is the heart of the problem, and no amount of bailout packaging will disguise that fact. Or the fact that the Administration is hell-bent on protecting banks and bank stakeholders at taxpayer expense.  We had hoped for better.

More old ideas that will be packaged as new:

  • Expand TALF (trash asset purchase plan) to include commercial real estate loans.  This facility, remember, is designed to bring down interest rates so we can all take on more debt.
  • Capital injections to recapitalize banks, perhaps via preferred stock that converts to common
  • Bad bank to hold all the overvalued assets.
  • National mortgage modification plan
  • Cash pay caps (OK, that’s new)
  • Give FDIC control over all huge financial firms, not just deposit-taking entities (new)

See Also:
Bailout Preview: Banks Saved, Taxpayers Screwed
Can We PLEASE Just Fix The Banks The Right Way?