Comments on: Trial Balloons: Insuring The Bad Assets

By: Common Sense

Common Sense — Sun, 01 Feb 2009 10:42:20 +0000

The FDIC has absolutely no experience in managing “toxic assets.”

Accordingly, the “bad bank” as being proposed will be another governmental disaster.

By: Transparency And Power « The Baseline Scenario

Transparency And Power « The Baseline Scenario — Sat, 31 Jan 2009 15:11:25 +0000

[...] Use a ring fencing/government insurance scheme for most of the bad assets; this is the Citi II/BoA-type deal but now available to all banks. The mark on assets used for the insurance payout is generous to [...]

By: polit2k

polit2k — Sat, 31 Jan 2009 09:33:05 +0000

~ nemo – ditto

I have made similar suggestions where the basic concept is that bad assets are not purchased but appropiated from what are clearly insolvent banks. The best solutions will not be found by thinking inside a pear shaped square.

By: Tom Krebsbach

Tom Krebsbach — Sat, 31 Jan 2009 06:15:54 +0000

Forget the idea of ring-fencing the bad assets. Here’s the proper algorithm.

1. Particularly for big banks, audit the books to identify bad assets and near-bad assets.

2. Have aggregator bank purchase these at best estimate of market value.

3. Recapitalize banks in exchange for preferred stock and warrants.

4. Repeat steps 1 through 3 every four months until economy recovers and banks are out of trouble.

5. Have Aggregator bank liquidate purchased assets over period of 3-5 years at best price available.

6. CONDITIONAL REIMBURSEMENT – Require banks over an extended term to reimburse government for any loss it takes on liquidation of assets. Require government to provide tax credit to banks for any excess profit it gains from sale of assets.

By: Nemo

Nemo — Sat, 31 Jan 2009 04:35:08 +0000

Prof. Johnson –

Could you please comment on Willem Buiter’s “Good Bank” proposal?

http://blogs.ft.com/maverecon/2009/01/the-good-bank-solution/