Alternative to the Bank Bailout

sachinc,

here's the problem: the banks could sell their good assets as it is right now. if the banks sell their good assets and are left with the bad ones, what are they going to do with the money they get for their good assets? presumably....buy good assets? it is a circular proposal that doesn't really do anything to clean up the banks.

happyrenter - the banks COULD sell their good assets (as some of them are doing - Citi selling its broker business to Morgan Stanley), but generally speaking, they don't want to - and that's exactly my point. They are using their hold on the financial system as a means to extort bailout money from the Fed.

I want the banks to be forced to sell the good assets, so NEW banks will be able to lend. I don't really care about what the existing banks do with cash generated from the sale of their good assets. Many will probably be insolvent, but as long as they don't drag down our financial system, who cares?

wouldn't it then just be simpler to nationalize the banks, wipe out the shareholders, clean up the balance sheets, recapitalize them and sell off the assets to the public?

I don't think so - there isn't any reason to wipe out common shareholders, preferred shareholders, or debt holders. They believe that the current marks on their "marked to market" bad assets are too low and they want to wait 5 - 10 years when they believe the assets will be valued much higher. I think it's best to let these assets sit with them - no one else really wants those assets anyway.

In the meanwhile, we buy all of their retail branches, commercial banking, capital markets, etc. divisions and sell them to new banks who are actually going to lend money to individuals and businesses.

I think it is similar to a pre-packaged bankruptcy, where public auctions would be held for the assets of each of these troubled banks. However, none of these troubled banks are in immediate risk of bankruptcy, so that's not really an option. I think it's a good way to avoid them from slowly suffocating our economy.

Sachinc. Wow you just solved an incredibly complicated 20 year in the making disaster in a twitter length message.

You should be so proud of yourself and your critical thinking skills. You my friend have the answer this entire country has been searching for. Now back to your tps reports and middle management role. Did you get that memo?

Mike - Pretty funny..

Either way, I'd like to hear some feedback from this forum. If it makes sense, there are lots of ppl to send a more detailed proposal to - senators, congressional representatives, CNBC, etc. Why not try? :)

sachinc: the large banks you are referring to do not have enough "good assets" to sell...they are INSOLVENT...that strategy is the same as nationalizing them which our current government does not want to do

their plan is to bleed taxpayers until they are dry

flmd - I fully understand that the troubled banks are insolvent as is. In fact, after they are forced to sell their "good" assets, they will continue to be insolvent. That is not the point at all.

The point is that all of those "good" assets, including retail bank branches, commercial lending groups, etc. will be better off in the hands of new banks who can use those assets to lend much more freely than the existing banks. Forcing them (the 14 banks with over $100 billion in assets) to sell their "systemically" vulnerable assets will free us from their threat of taking down the rest of the financial system.

they don't want to do that cause it will put all their friends out of business....management of the banks will be unemployed and they have scared the government into thinking that destruction of the world will occur if that happens

see GM, Ford etc

tps reports? I've got a meeting with the Bobs in a few minutes. Has anyone seen a red stapler?