Dan Walker

'Bad Bank' Problem: Solution Devised Must Benefit All Parties

Apparently you were hungover on the first day of finance class. An asset is worth what a buyer is willing to pay in an arm's length transaction. If a buyer thinks an asset is worth twice the price willing buyers are willing to pay today, he must devote capital to buy and hold that asset until such time as the market reflects his valuation assessment. (Or you could just get an MBA and skip this part)

Let's quit dancing around this issue like we just discovered some new anomaly at the equator of Mars. Citi and BOA are inarguably insolvent. No one who understands what these assets really are has drank enough kool-aid to beleive that they have marked them down to your hypothetical 20¢ on the dollar to begin.

Now apply some hard logic. There are many other banks who fit your description. How do you propose to sell you plan to the banks who have a small substandard asset exposure when it completely bails out their "too big to succeed" brethren who have completely bungled the profit-seeking motive and should be liquidated? We have not even addressed trying to sell some such plan to TAXPAYERS.

Fast forward. Say this has sailed past everyone else and ONLY has to be sold to the taxpayers. It may be a tossup whether the biggest collection of zombie debt is owned by Citi or BOA or by an entity which is not a bank at all but by AIG which the taxpayers already own (allegedly). Now you realize why ol' Tim stood naked in front of the world yesterday and admited he had no idea of how to deal with this mess.

To you, to Tim, to "the One"; the only solution is to liquidate these rotting corpses which are stinking up our financial landscape. Until you face this fact, you are just practicing sailing (standing in a suit in the shower flushing $100 bills down the toilet).