Obama Team Weighs Government Bank to Ease Crisis

[DeepModem Mom]

Source: NYT/Reuters

The incoming Obama administration is considering setting up a government-run bank to acquire bad assets clogging the financial system, a person familiar with the Obama team's thinking said on Saturday.

The U.S. Federal Reserve, Treasury and Federal Deposit Insurance Corp have been in talks about ways to ease a banking crisis that is once again deepening -- and a government-run "aggregator bank" is among the options. Outgoing Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair both said on Friday a government bank was one of a number of ideas U.S. regulators had been discussing.

The source said advisers to President-elect Barack Obama, who takes office on Tuesday, were also considering the idea of an aggregator bank among a range of options that could be pursued....

***

In outlining the idea of an aggregator bank on Friday, Bair and Paulson said the government could use money from the Treasury-administered $700 billion financial rescue fund to capitalize a new institution that would be able to absorb toxic assets now weighing down bank balance sheets.

The hope would be that taking these bad assets off the hands of banks would allow the banks to attract badly needed private capital and renew lending, the original intention behind the bailout fund known as the Troubled Asset Relief Program (TARP)....

Read more: http://www.nytimes.com/reuters/2009/01/17/news/news-us-financial-obama.html

[bemildred]

1. Just nationalize the lot.

Why should I bail-out the Ponzi artists at Citibank when I can just own Citibank and control what it is allowed to do directly?

[BlueCaliDem]

4. Agreed. The so-called free market banking system hasn't been working.

CEOs, shareholders, executives have all run our economy into the ground. I don't know if I'd want to keep our banks nationalized since we can't know who are future presidents are going to be, and can you imagine another *ush regime taking over??

I think, however, it's a good idea that the government take over for a while since it's apparent our banks don't know how to run their corporations anymore.

[bemildred]

Well, private is OK, like utilities, as long as it's "well regulated".

But for now, we need to clean up the mess.

[BlueCaliDem]

9. I'm with you on that, bemildered. We need drastic change

and we need it fast.

[DBoon]

17. Banks used to be well regulated

boring dependable businesses run like the gas company

Really safe, but never leading edge

You can thank Saint Ronnie and his heirs (especially Phil "hunt Democrats with dogs" Gramm) for what we have now.

Reagan's Savings and Loan implosion was just a taste of the next 20 years.

[bemildred]

19. Glass-Steagal act, when they repealed that, it was just a matter of time.

Not much time, either.

[Odin2005]

21. Finance is supposed to be "boring" and "uncreative", because in Finance "creativity" = Fraud.

Talk about "innovative financial instruments" is euphemism for "new ways for the rich to scam people."

[bread_and_roses]

20. Why is it "ok" to pay for someone to make a profit off an essential like a utility?

We have a community owned municipal electric system near here - their rates are historically around 1/3 of the rapacious "for profit" Corp we have for electrity and natural gas.

[dysfunctional press]

53. bingo. and set one low national rate for all mortgages- which would all be fixed rate.

nt

[DJ13]

2. It would be cheaper (& easier) to just nationalize our banking system

[midnight]

31. That is what Ireland just did to protect the country.

[glowing]

3. Only works if they allow deposits, savings, c.d.'s, and have regular banking

functions. I would switch over from my bank then. If he's only aquiring debt from big banks, it won't work.. but if the govt bank is willing to re-negotiate people's loans and take on the "real" value, then I believe it could work well.. along with purchasing homes already on hand to put the growing homeless people into.

[OnceUponTimeOnTheNet]

5. The Credit Default Swap traitors should be held to account First.

They have fucked the Global Markets. So much so, no one knows how much! Could be 55 Trillion, maybe 70. The * administration is kicking this can straight into the Obama Administrations lap.

[roamer65]

6. Nationalize them all and flood the system with $3T in new currency.

The banks have now deteriorated to such a point that MASSIVE reflation effort is now necessary.

[4dsc]

7. What about my toxic asset???

I would love unload my toxic assets on the government too.

This is pure bull shit and shouldn't be allowed to happen.. Let them fail!!

[BlueCaliDem]

8. There should be an order to wipe clean all CC debt (the ones that are getting bail out dollars)

so the American people can get a breather already.

Mortgages should be reevaluated and new loans issued for the current and REAL value of real estate, and all credit reports should be wiped clean.

Interest rates should return to usury law levels (10% max)and the Obama Administration should reinstate the Organization for Economic and Cooperation Development so we can tax those fat offshore bank accounts of corporations and wealthy people that have been enjoying a free ride since Paul O'Neill withdraw us in May 2001 and we lost hundreds of billions of dollars in tax revenue.

Hey, it's been good for corporations for much too long. It's the American people's time.

[JerseygirlCT]

23. What about those of us with good ratings and careful cc use

and those who've paid our debts and not gotten in over our heads?

Granted, many people are in a bad way through little fault of their own. But many more are there b/c they had to have the new car, or the really big house, or those vacations - things the rest of us just did without.

Restructure? Yes. Make usurious rates illegal? Absolutely. But I'm not so keen on letting either the banks or irresponsible people off the hook so easily.

[Mojorabbit]

30. I've done everything right too

but I don't begrudge others a second chance.

[girl gone mad]

40. Then we'll be straight back in the same mess...

for the same reason handing the banks hundreds of billions hasn't worked.

[Mojorabbit]

44. I don't think you can compare the two

People are trying to live a decent life. The banks have only one motive profit. I can afford my payments but in this climate I have cut way back. People who are helped would probably do the same. Maybe not when all seemed to be going well but in this atmosphere I think most would now. I don't want families out in the street. I want well fed children. I want people to have another shot at making it if they can be helped.

[JerseygirlCT]

46. Thanks for saying that more succinctly than I did! nt

[BlueCaliDem]

49. Wrong. Statistics have continuously showed that if people are given

a second chance, they won't fall back into "a mess". I base this on the stats of how many Americans refile Chapter 7 over the past decades before Congress took that right away. You'd be surprised how few do.

Compare that to how many corporations file bankruptcy to get from under having to pay salaries and pensions, and you'll see the disconnect.

[JerseygirlCT]

45. i don't think it's about begrudging

and as I said, there are people who find themselves in a bad spot, even when they've done all they should - there are especially many destroyed by a health problem (which is where this intersects so well with our need to fix that!).

But there are also those who simply took advantage, and would only continue to do so, not having learned a thing from this - which concerns me for the long run: if people haven't gotten the message now, we'll only find ourselves right back here again.

So, restructure their mortgages so they can stay in their homes? Absolutely. Restructuring along with counseling so they can pay off their cc debt? Absolutely. Outright forgiveness of those loans or debt? I'm not sold on that as any sort of good idea, I'm just not. The responsible people who find themselves in a bad way will want that, anyway: they already get that they have a responsibility for their own debt.

The others, like the greedy banks right now, will just take the money and run. And in a year, be waiting, palms out, for more.

[BlueCaliDem]

48. If you want to feel exceptional because you've been exceptional, feel free.

This is about second chances.

Congress has already taken away the right of most Americans to file Ch.7 while imposing NOTHING on loanshark CC's. You want to defend that? Fine. I don't. The BK Chp. 7 law was to give Americans a second chance, and statistics show - unlike speculation and conjecture - that people who were forced to file Ch. 7 never do so again even if filing Ch.7 actually improves your creditworthiness rather than paying down interest-fat credit card debts.

They should use this statistic when contemplating a second chance for America.

[dysfunctional press]

54. fuck that shit. why should irresponsible deadbeats get a free pass?

i could see setting a much lower universal interest rate- but wiping clean people's legitimate debts would be completely irresponsible- as well as VERY unpopular with the MAJORITY of people who are responsible in regard to credit card use and bill payment.

[Demeter]

10. An Economic Yucca Mountain Toxic Waste Dump

Don't call it a bank (although now that I think about it, it describes those banks that are frantically bailing, doesn't it?).

[depakid]

14. Hopefully, more like the RTC

Which ought to have been part of the plan in the first place- and probably would have been, except for Republican incompetence.

[Demeter]

25. Not RTC. There Is No There, there

It was fraud, pure fraud. There are no underlying assets to sell off.

[depakid]

28. Of course there are assets

The trouble is they're exceptionally difficult to put a market value on at the moment- making them illiquid but not worthless.

[Baby Snooks]

11. Two banking systems for the two Americas....

The larger banks will remain in place. They will become private banks. For the haves and have-mores. Everyone else will have a government bank. Everyone else being the "let's make sure they stay that way" have-nots.

[DUlover2909]

12. I know how we could become debt free!

Let's sell our whole military arsenal to the Chinese and whoever else wants to be a part of a big auction. Everything must go! It's the once in a lifetime warhead-athon! You too can own your very own stealth bomber or aircraft carrier! How about that ballistic missile submarine you've had your eye on? Can you say MIRVs? We got em!:-)

[BlueCaliDem]

50. I'm pretty sure we're already doing that - clandestine style, of course.

I'd rather Treasury Secretary Tim Geithner reinstate the Organization of Economic Cooperation Development (OECD) and tax those offshore corporate and the wealthy's fat bank accounts.

That would fill the IRS coffers mighty fast.

There was an estimated $500 billion back in May 2001 when Bush's Sec. of Treasury, Paul O'Neill did the sneaky withdrawal from the OECD, paving the way for corps and the wealthy to send profits to the Caymans and other countries in order to avoid paying taxes.

How much do they have there after 8 years?

[BlueCaliDem]

15. Sounds a lot like the health care plan President Obama is supporting.

You can keep your current, corporate-run HMO, PPO, whatever, or, you can buy into the same health care insurance of the government.

I'll choose the latter. My Blue Cross PPO barely covers a thing and I'm tired of getting letter from them that they no longer include that hospital, or that breast screening place, or that gastroentomologist, etc.

[high density]

13. Just make a national bank that competes with the corporate ones

If the banks of our country are not going to make loans from money we've given them, instead we should have the federal government originate these loans directly. Take out the middle man. It seems like the most efficient way to "unclog" the system without rewarding continued bad behavior from the banks.

[northernlights]

18. exactly my thought

Force them to do business or go down, by opening up the nationalized competitor. I'll move my last couple dollars (literally) there. My student loans are already with the feds, lol.

[SOS]

16. A terrible idea

Why should the taxpayer get stuck with all the garbage while the criminals who did this keep the profitable parts?
Hell no!
Nationalize them.

Wipe these banks off the face of the earth.
We can pay our mortgages, credit cards, auto loans and student loans direct to the Treasury.
Make your monthly check out to "The Treasury of the United States" instead of "Citibank".
Instead of 26.99% on a Citibank usury card, you pay a fixed 5%. And that's 3% above what ten year notes are now paying.
The Treasury would make billions in profit.

[JerseygirlCT]

22. While I sort of get that, I can't help wondering when and how

the public then gets repaid for doing that. So these banks made stupidass loans because of outsized greed and ignorance.

The US public says "ok, you screwed up, but don't worry, we'll fix it all for you".

And the banks have to do.... what?

[WillYourVoteBCounted]

24. he could nationalize the "FED" which actually is owned by private banks

but anything except give more money out to these crooks that created this mess.

[clear eye]

27. He could and he should

if only to stop the trillions of dollars of bad loans the Fed has been issuing the banks. (Google "Bloomberg News" and "Federal Reserve", and you should be able to find the story about how Bloomberg News went to court to get info from the Fed on those loans.) The story was up on DU a few weeks back.

[clear eye]

26. Letting them fail looks to be less expensive than trying to rescue them

The rationale for rescuing the banks has always been that they're "too big to fail", meaning that the FDIC costs would be prohibitive. But these insatiable crooks are costing more than any Gov't insurance payoff would be. Letting them go and allowing other smaller banks to expand with restored, enhanced regulation would be the humane way to go for our people. Obama seems to feel that our dwindling funds should go to these SOBs, and aging Baby Boomers should sit in the dark, trying to balance food vs. medicine in our old age. He keeps listening to a now, hysterical Robert Rubin who tells him the sky will fall if people like him are brought to reckoning by their outraged shareholders, as would happen if they were allowed to fail. It won't, but something pretty like the sky falling will happen if the Boomers who paid into SocSec all their lives are put into destitution and have no spending power or quality of life.

[Mojorabbit]

29. Why should the taxpayer

take on the toxic assets and let the banks continue as private enterprises free and clear?
It makes no sense.

[many a good man]

33. Exactly!

Isn't this the worst solution of all?

Instead of arresting the mass murderer, the government is simply helping him bury the dead bodies.

[PSPS]

32. What a horrible idea

This is yet another bush idea coming from the "obama team." The thing everyone is trying to avoid is revealing how much in toxic assets these banks have. The proper thing to do is simply "mark them to market" (meaning declare them to be worthless) and have the banks fail. Instead, we have these harebrained schemes like this to sweep them under the rug and have the taxpayer pay for them at their made up value instead of their real value (which is zero.) So this is yet another way for the bankers to drain the treasury, only this time with obama's help. Some "change", yup.

I hope something changes after Tuesday because, so far, I've been becoming more and more disenchanted with obama.

[readmoreoften]

35. Why would he suddenly 'change'? Hell, he picked his teams.

I'd characterize them as Bush-Minus-Open-Support-For-Torture-Plus-A-Labor-Secretary-Who-Is-Good-But-Probably-A-Token-Set-Up-To-Fail-Given-Everyone-Else-Picked. But hey, he probably won't put an anti-choice judge on the bench. I'm pretty sure of that.

[depakid]

36. If you're looking for another round of major bank failures- you'll be disappointed

with the Obama team.

[SOS]

47. Banks will fail spectacularly

From Thomas Friedman's op-ed today:

“Right now,” said David Smick, author of “The World Is Curved,” “the bankers are sitting on mountains of cash, including our bailout money, because they know their true balance sheets are a disaster — far worse than publicly stated.” The situation will likely worsen as delinquent consumer and auto loans are piled atop bad mortgages. No one trusts the banks, and even the bankers don’t trust each other.” Bringing clarity to bank balance sheets, said Smick, “is the first step to fixing America’s bank lending problem.”

But have no illusions. There are still real balance sheet problems that have to be surmounted. This is not just a psychological crisis.

“I wish people would stop saying that this is a crisis of confidence,” said Steven Eisman, a portfolio manager and banking expert at FrontPoint Partners. “The loss of confidence is just a symptom of bad credit and over-leverage. The banks are not lending because they know their balance sheets are loaded with future losses and they don’t have enough capital. The TARP gave them preferred equity, which is nothing more than a bridge loan. We need the government to force the banks to write down all their bad assets now and then recapitalize themselves, preferably with private capital. Those banks that cannot raise sufficient capital should be seized and their deposits sold off.”

The banks are lying. They are insolvent and no amount of capital from Paulson or Obama can save them.

[depakid]

51. Friedman's column is why Obama's team is looking to more systemic solutions

aimed at specific segments of the markets- rather than simply attempting recapitalize specific banks in return for equity shares.

[readmoreoften]

34. Well, I do trust his crack financial team of Summers et al...

Oh wait. I don't.

[eridani]

37. Nationalize any failed bank

Clean them up, break them up, and sell them to responsible people under tight regulations. Banks want moeny from the taxpayers? Then they'd better fucking get used to taking orders from the taxpayers.

[depakid]

38. The FDIC's been doing that....

Latest example:

The state Department of Financial Institutions closed Vancouver-based Bank of Clark County on Friday because of inadequate capital and liquidity.

The closure was the first in the state since 1993, when officials closed Emerald City Bank of Seattle.

The Federal Deposit Insurance Corp. became Bank of Clark County’s receiver and announced that assets of the bank will be sold to Oregon-based Umpqua Bank.

“The loan portfolio deteriorated to the point where they could not continue,” DFI head Scott Jarvis said after the announcement. “It’s our first in a long, long time. Washington state is not immune.”
Brad Williamson, DFI director of banks, said, “This unfortunate event is the result of a combination of significant deterioration in loan portfolios and the overall economic instability we are experiencing in our country today.”

All FDIC-insured accounts at Bank of Clark County will be transferred to Umpqua Bank. Insured depositors of the defunct bank will be able to access their funds by writing checks or using ATM or debit cards.

http://www.thenewstribune.com/1032/story/597770.html

[defendandprotect]

39. Stop bailing out capitalism -- and rid ourselves of FED Bank --

[girl gone mad]

41. So the taxpayers will be stuck with worthless "assets"..

and zombie banks. Just like Japan. Worked great there, I guess.

Oh, wait, what was I thinking... it's been an ongoing disaster for Japan.

[phoebe]

42. and look what nationalisation has done for Europe since the 70's

- stripping of valuable assets by the wealthy for pennies on the dollar, with all the usual excuses along with the time-honored "it's good for the country" which is tantamount to saying "you're either with us or against us", and with a healthy dose of "privatization" along the way. Can't anybody in government/politics come up with an ORIGINAL idea anymore?

[Oregone]

43. Why is a direct to consumer bank unfeasible and a worse idea than buying bad assets?

Why does the government have to lend at .5% to banks, so they can lend to us at 5%? Wouldn't it stimulate the economy to cut out the middle man and lend at 2.5% or something? I don't get this. Of course, I am not well-versed on the subject. To my dumb mind, it seems like a better idea than buying shit assets, hoping the banks have money to loan (rather than use to merge and takeover other failing institutions).

[RCinBrooklyn]

52. Taxpayers should not have to assume the private debt of banks. Some bailout. Jeez!