Bad Bank, Or Bad Plan?

I feel like Tommy Jones in Batman Forever about the 'Bad Bank' plan currently in vogue. My original proposition to recapitalize the banks here on SA back in September 08 included forcing a mark to market of dubious assets and a make-up of the losses. At that time, I felt that angry stockholders would dispose of any management types who had made bad decisions and over-rewarded themselves to the detriment of the enterprise. I have since seen (and been reminded) that that stance was pure folly and that the institutional stockholders who own most of the stocks are in this thicker than thieves and are not inclined to force any management turnover.

Congress simply voted to blow a boatload of borrowed cash, and Treasury first wanted to buy bad assets and then saw the light and decided to recapitalize the banks. When Treasury finally acted, they only did it halfway - they did not force a mark to market, and did not provide enough equity to overcome the problem.

Here we are a few days before February 1, 2009, debating setting up a 'Bad Bank' to house all the MAIV (Mortgage Assets of Indeterminate Valuation) to fix a problem which should have been addressed before a request for money was made to Congress.

Here is where Two Face appears. At that time it appeared that letting the rat out of the trap would force the issue of replacement of senior management by the stock holders in the offending institutions. Since that time, this idea seems to have no traction as (for example) Thain only was ejected from BOA (BAC) because he spent over $1MM redecorating his office and granted an offensive amount for bonuses. Citi (C) canceled its new jet, but none of the senior management are losing their jobs. There appears to be no demand from the stockholders to require accountability. Everyone is still far too comfortable and no one wants to rock the boat. Time for a bit of Governmental boat rocking since the Government seems determined to borrow from our descendants to fix this mess.

If we want to set up a bad bank to take the MAIV, force the FDIC to seize the banks in question. Put the MAIV in the 'bad bank', and sell the remaining A/L to banks who have management who shows signs that they are responsible to their stockholders. Bust up Citi and give the remains to Wells Fargo (WFC). Flush the management in these rotting corpses. Take common equity stakes for the taxpayers and completely dilute the complicit stockholders who felt assured that they had no need to act because they would be bailed out by those suckers (taxpayers). And for the last time, PUT THE EQUITY IN THE SOCIAL SECURITY TRUST FUND!

If we do not force some modicum of fiscal discipline on the management this time around and the stockholders since they seem unwilling to do it themselves, the next bubble crash (2016?) will leave us with the two investment options of hard liquor and Marlboro cigarettes for trading.

Comments

[Ishortyou:]

hm...If I were the government I would probably buy those MBS/CDP at the cost price or the price the banks pay for it, so I won't have to inject money to them, that would kill 2 birds in one shot, for one thing I clear their books of uncertain assets and for the other I won't have to inject money to them anymore. Then I would just sit tight till the housing bubble stabilizes and then start making money out of those MBS/CDO, so you see the problem is timing and the housing bubble.

Jan 29 07:49 AM

[Ranchr:]

With every Seeking Alpha short screaming bloody murder at the Bad Bank approach, it must be a very good idea.

Jan 29 07:52 AM

[venividivici:]

Anyone who complains about the latest plan to bail out these grotesquely incompetent bankers with more and more public money is immediately labelled a "short" by people like our friend above. God help me!!! It is little wonder that America is going down the gurgler at light speed.

Jan 29 09:53 AM

[Billy Ocean:]

LMAO.

What a p00n. Canned response much? wanker.

seekingalpha.com/user/...



On Jan 29 07:52 AM Ranchr wrote:

> With every Seeking Alpha short screaming bloody murder at the Bad
> Bank approach, it must be a very good idea.

Jan 29 03:33 PM