Additionally, I wish the talking heads would try harder to wrap there arms around the magnatude of the problem. I believe that if we don’t go into ultimate concern (panic) mode over the potential negative outcomes, we (the world as a whole) will come to regret it more than we can even imagine. This situation actually has the potential to become far worse than the Great Depression. If everyone of every political spectrum would just admit that they don’t have any real reliable answer to the incredible depth and complexity of the problem, we will continue to fiddle while Rome burns.

Incidentally, it’s not just the banking/financial oligarchs that got us here, but also the health care oligarchs, and the energy oligarchs.

Bottom line is that we should be having the most open conversation possible in the public venue, and resort to the most outrageously extreme options on a worldwide scale. Timidity is the enemy of success. Whatever we think is enough, multiply it by two and do it. We may all be destined to look like central Africa if we don’t.

I will be fascinated to see how much will there is for the G20 to assemble a bold plan to resolve the issues. This is where the good will toward our President may make something bold and inovative possible. Keep your fingers, toes, arms, legs and wallets crossed.

We begin with the general proposition that time is not of the essence; that all the banks need is the time to earn enough money to write off/sell these toxic assets, and thereby keep $350 billion of taxpayer money for other good deeds. The world as we know it will not come to an end if we solve the toxic asset problem later, rather than sooner, so long as we all know what is going on and that the “what” sounds sensible.

By way of example, lets have a well publicized plan that lets the banks try do do just that by the end of say, seven years. Banks can choose to enter the program. Those that do not will play according to all the asset-valuation and risk-based capital ratio computation rules currently in effect, and be closed, if necessary. Recall that closure wipes out shareholders, subjects uninsured depositors and bond holders to a financial haircut and senior officers and members of the board of directors to possible financial penalties and other indignities.

At the beginning of the period, bank examiners at participating banks and their bank managers will agree on what assets to put in the pot and the value of those assets as then appearing on the books of the banks. Banks will then be obliged to reduce that total by sale or write-off by a minimum of 1/7 at the end of each calendar year. Banks must make a report, easily available to the public, on their progress or lack thereof annually, no later than 31 days after the close of each calendar year. The report must bear the attestation of the CEO and CFO as well as the appropriate member of the board of directors. Those filing a fraudulent report would be subject to severe financial and possibly other penalties. The reduction must be met before the banks can pay a dividend or, if members of a bank holding company, send any funds for any reason to the holding company parent or any of its subsidiaries. If the minimum is not reached, the bank will be subject risk-based ratio calculations applied to all assets, and be closed if warranted. (The plan may include some exceptions to this general rule.) Total current and future remuneration of all senior officers and all members of the board of directors will be made part of the report.

At the end of the seven years, all surviving banks will be subject to risk based capital calculations in accordance with rules then in effect as applied to all assets. Federal regulators will then close, or permit to remain open, each bank in the program, as those calculations dictate. For banks designated for closure, the FDIC would perform its traditional role.

Going forward all banks of a specified size or larger will be subject to a “to big to fail tax,” similar to the “luxury taxes” now found in some professional sports. The tax will be in the form of risk-based capital ratios well in access of those currently in effect and applied to smaller banking companies and be in addition to deposit insurance premia. Banks in this class will be subject to closure rules much more strict than those applied to smaller banks.

Three words: chocolate-covered cotton.

Yossarian pushed his hand away. “Give up, Milo. People can’t eat cotton.”

Milo’s face narrowed cunningly. “It isn’t really cotton,” he coaxed. “I was joking. It’s really cotton candy, delicious cotton candy. Try it and see.”

“Now you’re lying.”

“I never lie!” Milo rejoindered with proud dignity.

This is going to be a hopeless exercise until the powers that be finally face up to the reality that the vast chunks of the so-called “legacy” assets are completely WORTHLESS.

The nation’s collective cognitive abilities are severely challenged right now. Clarity is called for. Write off the bad debt of the zombie banks, put them in receivorship, transfer control of marked-down assets and deposits to good banks. Keep it simple.

Bebchuk may be looking at the political reality that giving a handout to someone to clean up the banking mess for us might be more palatable than giving the handout to the bankers who caused the problem to begin with.

Like Simon has grown fond of saying, use one faction of the financial community against the other.

Why? Because if you know that the government is planning to give you a free $1 trillion with no strings attached to buy assets, you’ll want to make sure you get the lowest price possible for those assets to ensure a massive windfall.

Basically, now the Funds know they are the strong party at the negotiating table. Geither is the weakling. The Funds can now make all sorts of demands, knowing that Geithner has no choice but to acquiesce.

Terrible position to be in.

LONDON: The plan for a public-private fund to buy up toxic assets in the United States is likely to amount to a fig leaf with which to hide subsidies to failing banks.

It is also, inevitably, an entirely new subsidy to outside investors, who by definition will participate only if they get better terms than are now available in what we formerly thought of as the free market.

http://www.iht.com/articles/2009/02/17/business/col18.php