Assetmgrsc

Nationalizing the U.S. Banking Sector: There's No Choice

Young Mr. Kellogg seems to simply be repeating what many of his more famous colleagues are saying. I think that the "talking heads" are just tired of talking about the same issues month after month and gravitate to this solution as an easy way out. If we were to follow this foolish advise then we would be committed to a posture of having our entire economic pie shrink with almost everyone being poorer as a result.
Remember when Merrill Lynch sold 13 Billion dollars of assets for twenty-two cents on the dollar and forced banks like Wachovia into virtual bankruptcy because their auditors forced them into the same mark down. Does any serious person believe that once admittedly overpriced houses are only worth 22% of what they once sold for? Is this what we want for our entire banking industry, so that a few eager vulture companies can make a "killing" buying distressed properties.
What the government should do is set a minimum floor of about 50% of original value and take them off the hands of any holder willing to sell at that price. Part of this process could give the banks a 50/50 stake in any future profits from the eventual sale of these houses, while at the same time forcing them to take on a 50/50 interest in any future losses. Once this was done, the vulture firms would know that the properties were in "strong hands" that did not have to sell and suddenly, I predict, they would be worth much more than 22% of original value. The banks would then have stronger balance sheets, with fresh capital to loan in order to help economic activity, instead of sitting on their hands, afraid to lend in order to protect their weakened capital structure.
So, if all this is true why doesn't the government adopt this policy and free up the system; because they are afraid of "Moral Hazard." What the heck does that mean, you ask? Well, it means that somehow government types do not want to benefit common share holders, even if it provides the most help for everyone. Somehow common shareholders are not "Taxpayers" that many are saying need to be protected, when in reality most of those "Taxpayers" don't pay nearly as much taxes as shareholders do.