RTC: Creating a Big Bad Bank

by: Mike Steinhardt

It looks like the guy that tried to bring us the Super-SIV is getting close to a much bigger fiasco that some people are calling a new “RTC”.  Sadly, a week ago while having lunch with a close friend I suggested that the government would likely set up a big bad bank entity and try to put all the crap from the financial industry into it in one fell swoop. I just got a bad feeling when I heard that Paulson was fixated on the good bank/bad bank concept as his solution for Lehman.

Why stop there?  Why stop with just doing one investment bank at a time?  Of course that never worked out with Lehman because no non-governmental entity wanted to touch the same stuff they helped create.  So it is only the next evolutionary step for a socialist like Paulson to resolve that problem and replace the nonexistent buyer with the US government.

Does anyone get the sense that Paulson is just tired?  Tired of having to work so hard every damn day, every damn weekend.  He is probably worn down.  And besides PIMCO pretty much ordered them to do it this morning.  So just give in Hank.  Just take all that crap that the investment banks innovated and securitized and made all kinds of profits on years ago and buy it.  Buy it all.  And while you are at it, with your unlimited blank check powers, just buy every bad mortgage or house or car loan or car or credit card ABCP or the crap they bought with the credit card.  Buy it all.  Buy, Buy, Buy!

Just lump all that shit onto the government’s books so that the IBs and then everyone else can go back to making a whole new bunch of crappy loans.  Never mind what this will do to our country, our taxes and our currency.  Reading through the Volcker, Brady, Ludwig summary, it all seems so simple.  Just say, “desperate times call for desperate measures” over and over and over again and you will convince yourself it is not only necessary, it is beneficial.  I have no idea how they are going to be able to price these assets at “fair market value” or how they are going to force the seller to sell.  For the holdouts, those marks are going to be brutal.  As a result, if this goes through, I fully expect the mark-to-market rules will be waived.  If not, the losses that would have to be taken will devastate the banks as much as they would have been devastated with no intervention.

The Big Bad Bank appears to be a solution that politicians and regulators can get behind to show the public they are doing something.  It doesn’t matter what I think of that something.  Apparently it doesn’t matter what anyone that isn’t looking for a bailout thinks either.