Government advisors, unimpressed with the recent failures of TARP and all accompanying bailouts and guarantees, blithely continue the nonsense. Bloomberg writes:
Renewed questions about U.S. banks’ viability are pushing regulators toward a new plan that would remove toxic assets from bank balance sheets, in what may become the biggest effort yet to unfreeze lending.
President-elect Barack Obama‘s advisers see an increasingly grave banking crisis and are considering proposals far more sweeping than any steps that have been taken so far, according to people who’ve discussed the outlook with them.
“They need to do something dramatic,” said Harvard University Professor Kenneth Rogoff, a former chief economist at the International Monetary Fund, and member of the Group of Thirty counselors on financial matters, a panel that includes Treasury Secretary-designate Timothy Geithner and Lawrence Summers, incoming director of the National Economic Council.
Federal Reserve officials are focusing on the option of setting up a so-called bad bank that would acquire hundreds of billions of dollars of troubled securities now held by lenders. That may allow banks to reduce write-offs, free up capital and begin to increase lending. Paul Miller, a bank analyst at Friedman Billings Ramsey & Co. in Arlington, Virginia, estimates that financial institutions need as much as $1.2 trillion in new aid.
Oh boy. Here we go again. Get prepared for the next toxic asset bill. Looks like this time the trillion mark will be cracked. The fact that TARP, as expected, is a complete failure, doesn’t seem to concern these gentlemen. And just in case anyone cares: Whatever they try next to meddle with the current correction will be an even larger failure.
Fed Chairman Ben S. Bernanke called for “a comprehensive plan to stabilize the financial system and restore normal flows of credit,” in a Jan. 13 speech in London. He outlined options including a bad bank, “which would purchase assets from financial institutions in exchange for cash and equity.”
He need not look any further. The bad bank is the bank that he heads. It is called the Federal Reserve Bank.
“Buying toxic assets from banks is a good thing because I think confidence comes back into the banking system when you are certain — or more certain — that you have no time bombs ticking,” said Josef Ackermann, chairman of the Institute of International Finance, the Washington-based group that includes most of the world’s large banks.
Ackermann, who is also head of Deutsche Bank AG, Germany’s biggest bank, said “the real challenge here” is determining the price at which to remove the assets. He added, in a conference call with reporters Jan. 14, that Deutsche Bank doesn’t need to unload illiquid assets into such a bad bank.
What is Mr. Ackerman talking about? He knows damn well that the assets he is referring to are worth nothing. The price for something that is worth nothing is $0.00. Plain and simple. The banks should write down these assets accordingly and live with it. What good is it to establish a taxpayer funded bank that in the end will have to do the same in case it buys the asset at current cook value? Ah right, it secures for our high and mighty bank executives a few more millions that the hapless taxpayer should not be so sqeamish about.
“How do you use this next round of money in the most efficient and effective way? This is a Rubik’s Cube of a problem where there is no easy solution,” said John Douglas, a former FDIC general counsel who is now a partner at the Paul, Hastings, Janofsky & Walker law firm in Washington. “Doing something sooner rather than later to instill confidence is important.”
The solution is to put and end to this madness, let the market work, let the correction occur as quickly as possible, let the responsible banks stay in business, the reckless ones go out of business, let capable investors take parts of them over where possible, and let Americans save more and consume less, so we have genuine savings available again that can serve as a lending base. Before this happens, nothing will improve, nobody will lend, no one will borrow and we will have a lost decade. There is no way around the business cycle that this government has created. The only solution is for it to finally get out of the way.