It would be an absolutely remarkable thing, and would be talked and
written about for decades, if we execute a TARP II, or a Bad Bank, or
any such thing. This is the outline: we would be taking a failed
banking system (which at this point consists of a conflation of the
large banks and what used to be known as investment banks), and
subtracting its mistakes out of it. It would be recapitalized via
public funds, much in the manner of WPA works of shlock art in the
Thirties.
But none of the existing stakeholders (common equity and debt, much of which is held by very influential non-Americans including Saudi princes and the Chinese government) will have to suffer more losses than they have already. The American public will literally forgive their mistakes, and create a basis for some already-wealthy people to start getting much wealthier again.
Something tells me that when Obama comes back after his re-election to tell us all that the hard workers among us will need to dig deep and pay much higher taxes, he's not going to put the touch on Prince Al-aweed.
And the banks are going to see massive restrictions placed on their activities, and THAT will be seen as the payback for the public assistance rather than wiping out the existing equity and debt.
And what would this bizarre facsimile of a banking system be engaged in? Not any kind of economy-building finance. It would be involved primarily in mortgage finance, all of which will be guaranteed by the already-nationalized Fannie Mae and Freddie Mac (which last week signaled that they're insolvent too and will quietly be getting funded by a few dozen billion dollars, which was about the total size of their equity capital last summer).
But this isn't necessarily a negative for the economy. Big businesses for decades now have been getting their finance from the CP market rather than from banks. It's going to be hell for small businesses, who will start operating on real money rather than credit lines. This can most certainly be done (I've done it for years) but it means you have smaller businesses that take less risk, and will be far quicker to lay people off.
Expect to see massive public support for two sectors of consumer finance that have traditionally lacked it: auto loans and credit cards. Already the Fed is talking of buying up securitizations of these kinds of loans. Also expect the already-large support for student loans to be beefed up.
The American public is going into the business of consumer finance with both feet. This isn't necessarily bad or evil, except for one problem: the people we get to run our public banking system will be government employees. Getting a car loan or a credit card will be a lot like dealing with the Post Office, the DMV, or the IRS.
And just wait until green-technology cars come along. The banks will be offering much cheaper loans to buy those cars than the traditional kind.
And what of the sheiks and Chinese bureaucrats who will be enjoying the earnings streams from the public banks? Might not be a bad idea to join them now. Although I'm not giving investment advice here, recall that I've been flirting with the idea of buying up bank debt for a while now.
But none of the existing stakeholders (common equity and debt, much of which is held by very influential non-Americans including Saudi princes and the Chinese government) will have to suffer more losses than they have already. The American public will literally forgive their mistakes, and create a basis for some already-wealthy people to start getting much wealthier again.
Something tells me that when Obama comes back after his re-election to tell us all that the hard workers among us will need to dig deep and pay much higher taxes, he's not going to put the touch on Prince Al-aweed.
And the banks are going to see massive restrictions placed on their activities, and THAT will be seen as the payback for the public assistance rather than wiping out the existing equity and debt.
And what would this bizarre facsimile of a banking system be engaged in? Not any kind of economy-building finance. It would be involved primarily in mortgage finance, all of which will be guaranteed by the already-nationalized Fannie Mae and Freddie Mac (which last week signaled that they're insolvent too and will quietly be getting funded by a few dozen billion dollars, which was about the total size of their equity capital last summer).
But this isn't necessarily a negative for the economy. Big businesses for decades now have been getting their finance from the CP market rather than from banks. It's going to be hell for small businesses, who will start operating on real money rather than credit lines. This can most certainly be done (I've done it for years) but it means you have smaller businesses that take less risk, and will be far quicker to lay people off.
Expect to see massive public support for two sectors of consumer finance that have traditionally lacked it: auto loans and credit cards. Already the Fed is talking of buying up securitizations of these kinds of loans. Also expect the already-large support for student loans to be beefed up.
The American public is going into the business of consumer finance with both feet. This isn't necessarily bad or evil, except for one problem: the people we get to run our public banking system will be government employees. Getting a car loan or a credit card will be a lot like dealing with the Post Office, the DMV, or the IRS.
And just wait until green-technology cars come along. The banks will be offering much cheaper loans to buy those cars than the traditional kind.
And what of the sheiks and Chinese bureaucrats who will be enjoying the earnings streams from the public banks? Might not be a bad idea to join them now. Although I'm not giving investment advice here, recall that I've been flirting with the idea of buying up bank debt for a while now.
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