http://www.guardian.co.uk/business/2009 ... nk-bailout"As Wall Street's institutions perform a seemingly endless dance on the brink of insolvency, the Obama administration is under increasing pressure to consider the unthinkable. Frustrated policymakers, financial experts and voters are suggesting it is time to cut off life support to troubled banks.
"In a lot of cases, they're clearly bankrupt," said Dean Baker, co-director of the Centre for Economic and Policy Research. "Citigroup and Bank of America have a cesspool of bad assets and without government support, they probably would have failed. You have to ask yourself what we're trying to do here."
Wall Street's broken banks present policymakers with a series of difficult challenges that are echoed around the world.
A $350bn (£240bn) capital injection into banks by the US government in October failed to restore stability. A fresh $2tn initiative by the treasury secretary, Timothy Geithner, got a resounding thumbs-down on Tuesday as the Dow Jones industrial average plunged by 381 points.
The White House is trying to limit damage. Obama's spokesman, Robert Gibbs, assured reporters: "This plan wasn't written in one day and neither should it be judged by one day's stock movements."
But few experts are confident the strategy will work, or even that Geithner's sketchy outline amounts to a viable proposal. Paul Miller, a banking analyst at FBR Capital Markets, described it as "nowhere near enough" with too many gaps in the detail: "It lacks sufficient transparency to bring confidence and private equity back to financials."
At the heart of Geithner's proposal is the creation of a so-called "bad bank" of up to $1tn. The treasury will seed this with taxpayers' money in the hope of luring private funds to purchase the banks' toxic assets. Geithner says he has yet to determine quite how this will be structured. Under fire, he admitted to the Senate banking committee: "I understand the desire for details and I understand the disappointment about the lack of details."
Only two weeks after being sworn in, Geithner has attracted a roster of heavyweight critics. The Nobel prize-winning economist Paul Krugman and the influential harbinger of the credit crunch, Nouriel Roubini, have called for large-scale nationalisation of institutions rather than further efforts to keep them afloat through infusions of taxpayers' money.
"The problem is not toxic assets," said Krugman. "The problem is that financial institutions have lost a lot of money and many of the big ones, if they are not actually insolvent, are very close."
Aware of the mounting frustration and impatience, banking chiefs are trying to be humble. The head of Bank of America, Ken Lewis, opted for an eight-hour train journey from his North Carolina headquarters to appear before Congress on Wednesday, anxious to avoid using his corporate jet.
But as Lewis and seven other bank bosses arrived on Capitol Hill, they ran the gauntlet of protesters from Jesse Jackson's Rainbow-Push coalition, who were railing against the treasury's seemingly unfettered support for Wall Street.
Morgan Stanley's boss, John Mack, had a taste of public anger when campaigners descended on his mansion in Rye, a wealthy enclave in New York's commuter belt. Waving placards, the early-morning demonstrators accused him of being a "loan shark". "You've got to hold these chief executives personally responsible," said Bruce Marks, chief executive of the Neighbourhood Assistance Corporation of America, which organised the protest.
The conventional wisdom has been that the failure of top banks would provoke a catastrophic chain of events similar to the fallout from Lehman Brothers' collapse: a stockmarket crash, a panicked withdrawal of funds and a reverberation in liabilities around intertwined institutions in the US and abroad that could send the financial system into meltdown.
By trying to cleanse banks' balance sheets, the US government has been hoping to restore top financial firms to health. But in order to sell toxic assets such as mortgage-related securities, banks would first have to record their true value. Many are still held on balance sheets at vastly inflated prices.
A source at one Wall Street firm said Geithner's plan would either involve buying assets at over-egged values or would force banks to take billions of dollars in life-threatening write-downs: "The real question is are these treasury guys really serious about forcing the commercial banks to mark down their portfolios?"
By ordering so-called stress tests of each firm, the treasury intends to determine the extent of hidden losses. Geithner has yet to say what he will do with institutions that fail their tests – but a form of nationalisation, followed by dismemberment and resale, is one option.
Douglas Elliott, a banking expert at the Brookings Institution in Washington, said this would be risky: "If the reason for stepping in is because these banks are in a deep black hole, that black hole would become explicitly the taxpayers' black hole."
Nationalisation would wipe out shareholders – and Elliott said that as soon as one firm was taken out, others would suffer a crisis of confidence: "As soon as you do this to the weakest banks, the next weakest banks' stock will start to fall heavily. People will think 'maybe it's just a week or two before the government does this to us'." Analysts at Goldman Sachs have estimated banks could lose $2.1tn on delinquent mortgages, credit cards and loans before the crisis ends. Confidence is at rock bottom.
Bankers get a full on Grilling as Public demands they open up their books (this will, with enough pressure lead to public prosecutions / lynching as far as it can go)
http://www.bloomberg.com/apps/news?pid= ... refer=home"The committee resembled a 71-member board of directors, with Lewis, Blankfein, Mack and Dimon appearing along with Citigroup’s CEO Vikram Pandit, Wells Fargo & Co.’s John Stumpf, New York-based Bank of New York Mellon Corp.’s Robert Kelly and Boston-based State Street Corp.’s Ronald Logue.
Representative Paul Kanjorski, a Pennsylvania Democrat, told the bank leaders that they “once lived behind a one-way mirror, unaccountable to the public.” When they took taxpayer money, he said, “you moved into a fishbowl.”
The CEOs sat as politicians ordered them to raise their hands when asked yes or no questions, including whether they were lending more and giving themselves bonuses, and they had to wait when the committee recessed so that lawmakers could attend to other business. At one point, Lewis said he felt more like a “corporal” than a “captain of the universe” at the hearing.
“This is going to be a good ‘Saturday Night Live’ skit,” said Alabama Representative Spencer Bachus, the committee’s top Republican.
“It clearly underscores who the banks are being run for,” said Doug Sandler, the chief equity officer for Riverfront Investment Group LLC in Richmond, Virginia, which has about $450 million in assets under management. “It doesn’t make me feel like I want to own a bunch of bank stocks when they’re kow- towing to Washington.”
Frank told the bankers if they don’t like the restrictions on the government aid, they should return the funds.
“We will take it,” Frank said. “If there are any obstacles to you giving it back, we will undo those obstacles.”
The CEOs said they intended to pay back the government’s money. When pressed for specifics, Mack of New York-based Morgan Stanley said he wanted to repay “some portion of it by 2012.” Stumpf said, “It would depend upon credit markets more than anything else.”
Lenders may find they can’t back out of the federal program because private investors won’t commit new capital at favorable terms under current market conditions, said RBC Capital Markets analyst Gerard Cassidy in an interview today. They’d probably demand more than the 5 percent initial interest rate charged by TARP, Cassidy said, and as Lewis was testifying, Bank of America’s own chief investment strategist, Richard Bernstein, issued a report urging traders to shun financial stocks until the government increases deposit insurance, shuts large banks and seizes troubled assets.
“The banks that are solvent will do whatever they can, after the experience they had today, to detach themselves from federal aid,” Representative Alan Grayson, a Democrat of Florida, said in an interview after the hearing. “Those that are insolvent will not admit that, and continue to hold out their hands.”
Okay you know what the bad bank sham is a really stupid idea, whoever came up with that ought to be dragged out of there & tossed in jail and taken up by the mobs. What a ridiculously authoritarian idea. First of all the Bad Bank will fail, just like this guy did.
http://news.bbc.co.uk/2/hi/americas/7887502.stm
Second of all since when the holy hell did we as Americans, trust these Banks or Bankers to do the sound or obvious thing when it comes to our money!?
Answer: Since NEVER, that was why the Federal Reserve fraud was a device of fascists. Because the people never agreed to it, and it was passed in one session with no debate anywhere just like Patriot Act. And that's like trusting Israel to not wipe out humanity and destroy all of Gaza when we give them lets see 100 billion worth of cluster bombs. http://desertpeace.wordpress.com/2009/0 ... t-of-gaza/
Seriously this is a pathetic joke and even Obama knows that you can't fix the problem for bad banks by buying up all the bad debt, its just a band aid on a wound that's it. Here's how to handle the situation and put a stop to this fracas once and for all, simply let the banks tank & sell off all the assets to other shareholders then prosecute the profiteers for massive Securities Fraud. Then we'll find the rest of these CEOs, bankers and nazis who want their public New World Order games - and we'll toast them, throw them in prison, lynch plus tazer them & send the rest to live in Gaza.
Now THAT sounds like a stimulus package the world will be excited to see!!
