Monday, January 19, 2009

Avoiding the Issue

Amazingly, the folks in Washington are STILL not able to face the music. The latest plan from Sheila Bair (as outlined by the NYT):
"She, Mr. Bernanke and Treasury officials have begun talking about a new kind of bank, one that would be created and capitalized by the federal government, and whose sole purpose would be to buy up bad assets."
This is insanity. If the banks were able to sell these assets at a price that made them solvent, they would. It isn't like the value of these assets are going to RISE in the future; The assets are worthless for a reason.

So we might as well stop fooling ourselves: The assets are worth less than the banks paid for them, and the banks have bankrupted themselves by exhibiting bad business sense. They hired the wrong people to make decisions, and their boards are full of folks that endorsed this policy. To buy the "bad" assets is simply a face-saving gift to the banks and a giant middle-finger to the taxpayers by pretending that they don't really know what is going on.

It is time to put a stop to this stupidity: Wipe out the shareholders, haircut the bondholders, fire the boards and management, recapitalize and reboot.

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