Left Coast Rick

Curing the Credit Crisis: A Better Alternative Plan

Your righteous indignation is appropriate, but ill timed, be patient. We need to restore the liquidity in the system........then we go and get the creeps. Once the new RTC, for lack of a current name, owns the bad assets, the Feds will have a bigger hammer to go after the bad people involved in this. Trust me, it will not go lightly. The FBI investigations of Freddie, Fannie, Lehman and AIG are just the start.

Curing the Credit Crisis: A Better Alternative Plan

ABG wants to fix the blame and not the problem--- but he starts with a fundamental assumption that is incorrect-- which is that there are enough healthy banks to survive his prescription for wide-spread "runs" on banks. Virtually all banks are in a liquidity crunch right now-- what used to be liquid assets are not easy to sell today, as virtually every instituition is a seller. Publishing "the list" will only siphon more liquidity out of the system. And then the FDIC must step in. So, if we go w/ ABG's plan, we will still have a bailout, but only after we've created more panic and finally sent the economy into depression.

There is very little liquidity in today's banking system to handle those kinds of runs. Banks are being required, in the immediate term, to de-leverage, which means they need to reduce lending. The only way to prudently de-leverage is to raise capital through earnings, offerings and as the loans payoff. The Paulson plan, while not perfect, would give banks the time for that to work. By all means, let's not overpay for the assets or allow the greedy executives windfall gains. But restoring liquidity is paramount.

What If What Economists Taught Us Is Wrong?

What Flav said, but I'd spell disease correctly...