CNBC: ‘Bad Bank’ Plan Is Dropped (via Calculated Risk)
The Obama administration’s wide-ranging plan to stabilize the financial system no longer includes creating a “bad bank” but will still contain measures to buy up toxic assets from financial institutions, according to a source familiar with the plan.
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At the moment, the idea of involving private capital in the purchase of bad assets “is gaining speed,†said the source, who is familiar with the discussions. In that way, the government might simply encourage firms to buy the assets or provide some sort government subsidy covering some of the costs.
The goal is to make the proposal sufficiently complex that the average person is unable to recognize the blatant gift of trillions of taxpayer dollars to private firms. Or am I being too cynical?
If these assets were worth buying, private equity firms would already be purchasing them. The only way this plan makes sense is if the government provides a “limited losses, unlimited gains” insurance policy on the garbage assets. Will the private equity guys — and the bankers — figure out how to game the system to maximize the transfer of taxpayer wealth to themselves? Surely not…
Given that the announcement was delayed 24 hours for no reason, and every day there has been a new leaked “trial balloon”, I think it is safe to say that these folks have no idea what they are doing.
I think they should take all of the ideas floated in trial balloons over the past two weeks, write them on a big wheel, and open tomorrow’s press conference by spinning it. The result would be at least as good as whatever they are doing now.
Also on tap tomorrow, the Fed and Treasury will announce an expansion of the TALF (Term Alien Life Form). Because the real problem, as everyone knows, is that Americans are not taking on enough debt to buy expensive toys. I wonder if I can get a Federal Reserve Visa card? With Ben Bernanke’s face on it?
Update 18:55
CNBC reports the bad bank is back.
Earlier, CNBC.com reported that the Treasury had dropped the “bad bank” concept, but sources said a new version of that plan has emerged instead.
I could not make this up if I tried.
I think they should issue debit cards with unlimited spending power to everyone. That way everyone has enough money for whatever they would like at any given point in time and the economy will forever be stimulated. That will make this country the United States of Utopia (USU, or just US as it is called now anyway) where everybody gets what they want. The only hitch with this plan is figuring out how to get people out of their houses and go to work.
I like Snoopy’s idea, for it’s just one step we need to be more like Star Trek. Ya know, where there’s no money, everybody gets whatever they want, and people work for their own personal enrichment.
I guess things are going to have to get much, much worse before our leaders are willing to accept a fundamental shift in their thinking. Since there is today no consensus on what caused the Great Depression, nor what did and did not work in ending it, it is not surprising that we will muddle through the Great Recession similarly clueless. I don’t claim to know exactly what we should do, but I think I know what we should not do, and that is to reward incompetence and a broken business model with a taxpayer bailout disguised as a toxic loan purchase “assistance” plan. And, just wait until the cratering commercial real estate market enters the bad bank fray.
I believe a stimulus plan — bigger than what is proposed — is necessary to mitigate an inevitably ugly 2009-2010, but that our elected politicos simply cannot set aside their egos and ideology for the public good and craft a plan that is smartly targeted and that will be implemented quickly .
What a bummer. Color me blue.