'Bad Bank' proposals: will this really happen?

[Penguin]

From Bloomberg, and practically every other news outlet in the free world:

http://www.bloomberg.com/apps/news?p...VQk&refer=home

QUOTE: Buying illiquid assets amounts to swapping taxpayers’ “cash for trash,” Nobel laureate Joseph Stiglitz said in a Jan. 31 panel discussion at the World Economic Forum in Davos, Switzerland. “You shouldn’t chase good money after bad.”
Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, said the plan would leave taxpayers paying for years of imprudent lending by banks.

END QUOTE:

Edit: Now Paul Krugman gets in a word:

http://www.nytimes.com/2009/02/02/op...prod=permalink

QUOTE: If news reports are right, the bank rescue plan will contain two main elements: government purchases of some troubled bank assets and guarantees against losses on other assets. The guarantees would represent a big gift to bank stockholders; the purchases might not, if the price was fair — but prices would, The Financial Times reports, probably be based on “valuation models” rather than market prices, suggesting that the government would be making a big gift here, too.
And in return for what is likely to be a huge subsidy to stockholders, taxpayers will get, well, nothing.
END QUOTE:

This is the first time I have started a thread, so forgive me if I started with what seems like a popular target. But I am alarmed that this thing is actually getting air time. My intention was not to parse the details of the plan but to ask the following question:

Is it actually possible that the American public will accept this proposal?

"Here, bend over this beautiful granite countertop and these nice senators will explain all the details to you."

Is this type of debt transfer from the banking industry to the taxpayer taken into consideration with the Ka-Poom theory? And we haven't even gotten serious regulatory concessions from them yet!

Maybe I am missing something, but this looks like the play of the game right here. This is the end game if it is done correctly.

Will

[we_are_toast]

Re: 'Bad Bank' proposals: will this really happen?

Paulson wanted to buy these toxic assets and was criticized for it. Many economists were suggesting bank recapitalization, which he said he did, and he was criticized for a bait and switch. We really don't know what he did.

Now we're back to buying toxic assets, with the bad bank twist. The Fed started buying commercial paper without a problem, so I don't think it would be a problem for the government to step in and provide the credit for whoever needs it.

The question is: why do they feel these banks are too big to fail? There's something else going on here that we're not hearing much about. I'm not so cynical to believe all the politicians are simply being bot off. My guess is the CDS'. If these big banks are as tied up in the CDS market as I'm guessing, the chain reaction of their failures and maybe $20 Trillion of CDS' defaults would shake the world.

Of course, the solution is to declare the CDS' null and void, then declare a bank holiday, may the insolvent banks RIP, and the government helps the solvent banks provide the "needed" credit and we start rebuilding a new sustainable financial system.;)

[Penguin]

Re: 'Bad Bank' proposals: will this really happen?

Could be. I have rode this thing out so far and managed to keep a somewhat even keel. But I have to admit that between the government guarantees/risk assumption and this notion of overpaying for very questionable assets I am starting to get a queasy feeling in my stomach.
It's freaking me out! :p
Although I never doubted that our government ~would~ sell us out if the bank lobby made a decent offer, I always figured they would be too scared to do so in broad daylight. And what scares me even more is that it looks like they could get by with it if they push hard enough.
Will

[c1ue]

Re: 'Bad Bank' proposals: will this really happen?

The situation as I see it is this:

1) Obama/Geithner are clearly looking to 'neutralize' the bad debt.
2) The good news is that their proposals are being communicated relatively early
3) The bad news is - despite universal disdain, rather than substantively change the original thesis (i.e. government buys bad debt), the response is to delay more formal proposals

Hopefully this doesn't become:
4) Repropose same crap as economy continues downward spiral until it is accepted.

Its like the KISS method of political maneuvering: propose broad sweeping simplistic methods of 'fixing' a thorny intractable problem. If it fails, blame it on the implementation (Geithner under truck). If it succeeds, then take the credit. If it is not accepted - then you've got a future 'I told you so'.

[GRG55]

Re: 'Bad Bank' proposals: will this really happen?

As was discussed on another thread a short time back, the Obama economic team appointments are pretty well all from Goldman alumnus Robert Rubin's dugout. Summers, Geithner, the lot. All except Volcker, who we can hope will prevail...but who knows.

They claim the current catastrophe was unable to be predicted, and some claim that even if it had been predicted it was unpreventable. All this despite ample public evidence to the contrary, iTulip included.

Each evening last week I watched a number of the interviews and panels from Davos. It became a painful exercise. The financial elite are on the defensive, claiming over and over that the regulators were at fault, not them. I listened to so many high profile participants make this claim, including JP Morgan's James Dimon and former chair of the National Economic Council, Laura Tyson, I almost threw up [Tyson actually looked for absolution from the moderator because some members of her family lost money with Madoff :p ].

The probabilities seem to be stacking up that we should expect more of the Hank Paulson strategy of moving debt from private to public balance sheet, and not much else. They all came out of the same school.

[Spartacus]

Re: 'Bad Bank' proposals: will this really happen?

Is this type of debt transfer from the banking industry to the taxpayer taken into consideration with the Ka-Poom theory? And we haven't even gotten serious regulatory concessions from them yet!

Broadly, yes.
We call it

"privatize the profits, socialize the losses",

or "socialism for the rich"

[Slimprofits]

Re: 'Bad Bank' proposals: will this really happen?

Each evening last week I watched a number of the interviews and panels from Davos. It became a painful exercise. The financial elite are on the defensive, claiming over and over that the regulators were at fault, not them. I listened to so many high profile participants make this claim, including JP Morgan's James Dimon and former chair of the National Economic Council, Laura Tyson, I almost threw up [Tyson actually looked for absolution from the moderator because some members of her family lost money with Madoff :p ].

The probabilities seem to be stacking up that we should expect more of the Hank Paulson strategy of moving debt from private to public balance sheet, and not much else. They all came out of the same school.

Did you hear the President of Guyana? I think he was on the same panel as Tyson. He was talking about how it was nice for the "developing world" not to have to hear lectures from the "developed world" about the wonders of Wall Street and the City of London.

[Penguin]

Re: 'Bad Bank' proposals: will this really happen?

I have learned so much about economics since this train wreck became known to me almost two years ago. But as much as I have learned, and truthfully have yet to learn, about economics I believe more has been taught to me about human nature and politics.

Had you told me two years ago that this was the end game and that very little opposition would arise on it's proposal I would not have believed you. At this point I am 100% behind nationalization. Wipe out everyone who owns a stake of this sludge and let's move on.

The lack of resistance has me rattled. The lack of serious discussion that divulges the long term consequences has me irritated.

Are we that far gone as a nation that we will not face up to hard truths and take on hardships for posterity?

Will

[rabot10]

Re: 'Bad Bank' proposals: will this really happen?

[quote=Penguin;74079]I have learned so much about economics since this train wreck became known to me almost two years ago. But as much as I have learned, and truthfully have yet to learn, about economics I believe more has been taught to me about human nature and politics.

Had you told me two years ago that this was the end game and that very little opposition would arise on it's proposal I would not have believed you. At this point I am 100% behind nationalization. Wipe out everyone who owns a stake of this sludge and let's move on.

The lack of resistance has me rattled. The lack of serious discussion that divulges the long term consequences has me irritated.

Are we that far gone as a nation that we will not face up to hard truths and take on hardships for posterity?

Will[/quo

Hey how do U really feel?

[Penguin]

Re: 'Bad Bank' proposals: will this really happen?

Depressed..... in a rueful sort of way. :p

[The Outback Oracle]

Re: 'Bad Bank' proposals: will this really happen?

The very notion that the problems can be solved by a bit of a 'smoke and mirrors' twist in the form of a "Bad bank" is symptomatic of the fundamental nature of the problem! Noone is taking it sufficiently seriously!

[metalman]

Re: 'Bad Bank' proposals: will this really happen?

Depressed..... in a rueful sort of way. :p

you are witnessing the depth of the corruption that built up in our political economy over the past 30+ yrs and you are horrified. all of us are. corruption is the only explanation for the bad bank vs creating a resolution trust corp. 2 as itulip talks about... an orderly sale of the good assets of the insolvent banks to the solvent banks and move on. the bad bank deal swaps treasury bonds for worthless securities... diluting the value of bonds which value you and have created by our hard work... without resistance by congress... can mean only one thing... the obama admin is as corrupt as the last one and the one before that... as hudson says, obama is reagan version 8. years of fire econ crap to go... years of depression as they try to bring the fire econ back. where does thta go? up to your imagination... civil unrest... crackdown...

are we not on this road... America in 24 month's time?

if we are... how do we get off it?

[Penguin]

Re: 'Bad Bank' proposals: will this really happen?

metalman, I think you might have it. The corruption and incompetence is horrifying.

Another thing to remember is the length of time that the FIRE economy has been dominant. The powers that be, and to a large degree the public, just simply cannot imagine a different path. It has been too long. We aren't a nation of builders and designers anymore. Hopefully we will be again some day.

I hope you are wrong about Argentina being our future. I read an article about self defense and protection written by a young fellow who lived through that mess and it was scary. Having to go heeled in public at all times, don't slow down too much at traffic lights at night, put bars up over the windows, etc. The incidence of crime seemed almost incredible if he was preaching the straight goods.

Will

[Penguin]

Re: 'Bad Bank' proposals: will this really happen?

Yves gets into the mix now. You've got to love her.

http://www.nakedcapitalism.com/2009/...-than-you.html

Quote: "The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting)."
END QUOTE

Attagirl! Give 'em hell.

Will

[ax]

Re: 'Bad Bank' proposals: will this really happen?

Yves gets into the mix now. You've got to love her.

http://www.nakedcapitalism.com/2009/...-than-you.html

Quote: "The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting)."
END QUOTE

Attagirl! Give 'em hell.

Will

But we're off to such a good start...
http://www.bloomberg.com/apps/news?p...ogk&refer=home

How many billions in the hole will the American taxpayer have to go before the government stops jobbing us with these plans?