The Bad Bank v. Good Bank Option

[leftchick]

http://consortiumnews.com/Print/2009/013009b.html

By Brian Barger
January 30, 2009

So what's wrong with creating a "good bank" owned by the American people?

The current wishful thinking in the debate over what to do with the failed U.S. banking system is that once the troubled banks are righted, they will not only float, but lift the sinking economy with a surge of loans and investment money.

The latest salvage strategy making the rounds is to create a "bad bank" (as if we didn't have enough of them already). But this one would be different; think of it as mortgage-backed Viagra, unburdening the men of Wall Street of their nonperforming loans, freeing them to again arise to a climactic quarterly finish.

At its most basic level, the plan would buy up bad loans made by bad bankers, rewarding the most inept, incompetent and corrupt Wall Street peddlers with government largesse – leaving them with their refreshed "good banks" packed with profitable loans, while sticking taxpayers with a foul bag of bad loans and other "toxic assets" in what's deemed a "bad bank," government-owned.

Once again, a U.S. government "rescue" plan would not only protect the executives most responsible for creating the whole mess, it would free them from liability for their misfeasance. It's not yet clear how much weight the Obama administration is giving to the plan.

What does NOT appear to be on the table is the creation of a different kind of "good bank," a Central Bank wholly owned and operated by the U.S. government, a bank that Americans could trust not to steal what remains of their savings.

With confidence in the financial system at an all-time low, why not a government-run "good bank"? A Central Bank, unlike today's Federal Reserve which does little more than set interest rates, could offer full-service retail and commercial banking while enjoying the public's trust.

[whistle]

1. Rename Bad Bank to Intensive Care Unit Bank or ICU Bank as most of

...the toxic paper they will pay good money for will die right there in the bank.

Valuations ought to be pennies on the dollar, not full payment to the speculators who grabbed up that toxic paper.

[JackRiddler]

2. Very good thinking - please vote in related poll from yesterday...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4955805

Opinion: To hand more trillions to the banking class would be disastrous policy. To let the Republicans step in and play the opposition to the bailouts would be a political disaster. Obama should suspend all further payments to what FDR called "the banksters," and use the trillions for a national recovery bank.

(Agree or disagree?)

[leftchick]

4. banksters?

did he really? Obama needs to hire or listen to some very good advice from Krugman and Roubini ...

<snip>

Roubini has counseled various policy makers, including Federal Reserve governors and senior Treasury Department officials, to mount an aggressive response to the crisis. He applauded when the Federal Reserve cut interest rates to 2 percent from 5.25 percent beginning last summer. He also supported the Fed’s willingness to engineer a takeover of Bear Stearns. Roubini argues that the Fed’s actions averted catastrophe, though he says he believes that future bailouts should focus on mortgage owners, not investors. Accordingly, he sees the choice facing the United States as stark but simple: either the government backs up a trillion-plus dollars’ worth of high-risk mortgages (in exchange for the lenders’ agreement to reduce monthly mortgage payments), or the banks and other institutions holding those mortgages — or the complex securities derived from them — go under. “You either nationalize the banks or you nationalize the mortgages,” he said. “Otherwise, they’re all toast.”

http://www.democraticunderground.com/discuss/duboard.php?az=post&forum=389&topic_id=4963071&mesg_id=4963149

[terisan]

3. Only if politicians cannot control it. nt

[JackRiddler]

5. Who would you prefer control it? Bankers?

[terisan]

6. CITIZENS.

[JackRiddler]

7. Which means? How do they exercise that control? Through representatives?

Should national bank boards be elected? It would be an enormous improvement.

[killbotfactory]

9. I should be run like a credit union

http://www.creditunion.coop/

I think we should let the giant "too big to fail" banks fail and encourage credit unions rise in their place.

[terisan]

10. I'd leave the representatives out of it. In the past they changed law to allow

using social security surpluses to fund other things (don't want to pay it back now). Congress is not always trustworthy.

I would explore a system where citizens are the shareholders and maybe the banks are regionalized under a central bank but also have the opportunity for local decision-making.

Elections may work. I would like a structure where we can relate to the system and feel ownership of it , know what the bank is doing, and can steer it in the directions we want our regional economies to go.

[JackRiddler]

13. Plus, we'd learn over time... given that we'd make mistakes.

It couldn't work out worse than the current joke, wherein only crime pays. Crime is required. Crime pays and honesty gets you fucked over.

[terisan]

17. Only crime pays and crime is required...hadn't thought of it that way but

it seems true.

Maybe has something to do with impersonality-easier to commit crimes against people one doesn't have to see everyday. Although there will always be Bernie Madoffs around.

I've been loooking at data about Norway which seem to be relatively progressive and seems well prepared for the downturn-they are projecting a rise in unemployment to 3.5 in 2009 and have their "targeted" stimulus and tax relief package ready and it seems so logical and simple and undramatic.

They never joined the eu so they have fewer problems now than some eu countries. They reasonably plan their economy and as far as I can see, have a good life. Pleasant lives, reasonably secure, well-educated, Of couse they have a more homogeneous population, do not spend the massive amounts we do on defense and their population of just under 5 million means that people have easy access to each other and they know what is going on in their industries and banks.

They have had recent problems regarding muslim immigration and I don't know whether that is improving.

I keep thinking that we have become unnecessarily complex and the benefits of complexity are too few.

[JackRiddler]

18. When a system gives advantage to crime...

which has been the case to some extent all along, but got rather grandiose starting with Reagan-Bush, in the end crime becomes a requirement for getting ahead.

[killbotfactory]

8. This assumes that the US government is capable of working for the people

instead of nearly exclusively in the interests of people with money and power.

[terisan]

11. I'd like some change in structure. Maybe regional entities and trade. The Federal/State

construct works for some things but not others.

[ContinentalOp]

12. Uh, shouldn't the banks be giving their bad debt to the "bad bank" for free?

:shrug:

[JackRiddler]

14. Yeah, right?

And if it's sold, they can get a cut.

Come on, what do you think this is about?

[ContinentalOp]

15. I can't tell if you're agreeing with me or not!

It seems like you are but your reply sounds kind of sarcastic. I just don't understand why we would BUY worthless investments. The benefit to the banks is that they are getting bad investments off of their books. If they want to do that we can offer to take those of their hands for free and put them into this government "bad bank" but why would we pay to provide that service?

[JackRiddler]

16. Oh, I'm agreeing with you.

Just saying that there is a reason why an obvious good proposal like yours isn't under consideration. The point of all this is to give the banks everything we can, to live for the banks. Or else!

[slipslidingaway]

19. Kick n/t