I do like the Bad Bank plan, it worked in the past and it seems as though it should work this time as well. I hope it will work.

But I am curious … do any of you feel there is much more to this than meets the eye? Do any of you feel that this is (potentially, I guess) a catastrophe that is out of anyone’s hands? There seems to be one bubble after another. One grand scheme after another that doesn’t work. If we do A, it makes B worse. If we do B, A and C seem to be adversely effected, etc. This has become like water in a toilet bowl, it gains speed as it swirls around, and then ….. it’s gone.

I think we’re going to see 3-4 more Bernie Madoff’s, or 10-12 “little Bernie’s”, or a combination of both, totaling perhaps $125-$175 billion. The second wave of mortgage resets is coming with more ferocity than the sub-prime crisis. B of A’s jumbo loans have a 13% delinquency rate. 13%! Three times what our “acceptable target” rate was at my S & L in the mid-80′s.

Despite our efforts, I see China, Russia, Britain, France and Germany being seriously injured in all this.

Sadly, I see a 40% probability of Global total economic collapse by September 2009.

Am I the only Bozo on thise bus? What percentage would you give this happening?

You raise a good point. I may have overstated the case by using the term “in depth”. It may be sufficient to simply identify the distressed assets.

And then such audits would probably have to be limited in the near term to the largest banks: global, national, and super regional.

Even so, identifying the distressed assets of major banks in this country and then isolating them in an “aggregator” could do wonders for confidence in the financial system.

Hopefully such a task could be performed expeditiously.

Full audits are usually a sound idea. I would normally agree with you, however, I doubt there are enough CPA’s, accountants and government auditors on the planet to get it done quickly enough. Time is of the essence here. Full audits of banks, especially many of the size we are talking about, take many weeks. I was a VP of an S & L in CA, and I know when it was audit time it took the better part of six weeks. Six weeks is an eternity right now.

One other thing to think about: Politicians don’t like transparency. Sure, they talk a good game, but when it comes down to it, they’ll prefer fuzzy numbers and generalities over hard and fast facts any day. And if the American public finds out exactly how bad things really are, it would instill a greater degree of fear, panic and lack of confidence in our system than we have now.

We’ll get the Bad Bank. We’ll see roughly $6 trillion (more) spent on these toxic assets. Then we’ll see foreign money rush back in to the U.S. system, which will kill many economies around the globe and ignite a firestorm of inflation in the U.S. Europe will go into deep recession, and we’ll see one global currency within two years.

I do not think mandatory participation is necessary. Rather, what should be mandatory is a very in depth audit of banks finances by the responsible regulating agency (usually the FDIC?). After the audit is complete, a public report should be issued which indicates how sound the bank is: what percent of assets are questionable, what percent of assets are likely to suffer degradation from the recession, what the reserves are, etc. The bottom line of the report should indicate what the auditors feel is the capitalization needed for the bank to continue as a going concern.

This is information which investors, creditors, customers, and the public in general deserve to know.

Then leave it up to the banking officials to decide whether they want to participate in the asset purchase and recapitalization program offered. Obviously, if a financial institution receives a questionable audit, they will have little choice but to participate, unless the questions regarding the financial health are fairly minor.

Public disclosure of the audit report would also provide a fair degree of tranparency about the financial health of institutions and the financial sector in general.

The suitable system under is needed to solve the problem with fair pricing. Now the government intervention is doubted to give the fair pricing whatever it uses the bad bank policy to leverage public money from Congress that would cause more gigantic debts from the loss of the leverage policy or the old method of FED and FDIC intervention.

The best way now the public should focus on FED and FDIC whether they intervene at fair pricing or not and should focus how much the expected loss from those intervention that no one knows.

Bad bank is good idea on the expansion of intervention size without Congress and public awareness that the leverage is not public debt but it actually is, but if there is no fair pricing, it will create the unexpected mountainous loss that will cause the calamity in the financial and economic systems.

We could expect to see the leverage bad bank idea to be used by other countries in EU and Japan, so we should not be the concern too much about currency devaluation.

So the question is, if the government did decide to follow your advice and get AHEAD of this problem, how big would the bail-out have to be as a percent of GDP?