The trailers to this one look awesome. Trillions in bad assets will disappear with the best special effects ever! Our banking system, rescued like a damsel in distress!
I like Bruce Willis for the hero - Treasury Secretary Geithner. But is Angelina Jolie available to play the damsel?
But bank stocks surged on hopes the government was moving toward creating a “bad bank” to purge toxic assets from balance sheets that are rapidly deteriorating as the economy worsens. On Wednesday, the Federal Reserve cautioned that the economy was still spiraling downward on many fronts.
According to several Wall Street officials, senior administration members spent the weekend and the last few days reaching out to top bankers for their views on how a bad bank should be structured. Lawrence H. Summers, head of the White House’s National Economic Council; Sheila C. Bair, the Federal Insurance Deposit Corporation chairwoman; and Mr. Geithner have been involved in the talks, the Wall Street officials said.
Federal policy makers are discussing how to use the second $350 billion portion of bailout funds. About $50 billion to $100 billion is expected to be allocated to stave off home foreclosures. That would leave up to $250 billion available for the banks, with the bulk going to buying troubled assets.
On Wednesday, the head of the Congressional Budget Office told lawmakers that weakening banks would probably need hundreds of billions in additional funds beyond the Troubled Asset Relief Program, or TARP.
But administration officials believe that trillions of dollars more may be needed to buy the majority of bad assets from banks.
“The size of the problem is so large that no one knows if you just wiped out all the assets, how much it would cost,” said Senator Charles E. Schumer, Democrat of New York and vice chairman of the Joint Economic Committee. He added that a number of officials estimate it may take up to $3 trillion to $4 trillion to buy the bad assets.
So the $250 billion left over from TARP will be but a drop in the bucket. To get to the nub of the problem, we are going to have to recapitalize the entire banking system. No doubt despite what our hero, Mr. Geithner, says, there will have to be some kind of ownership of these institutions either through stock or other mechanism for the government to keep track of the asset swaps.
I knew you'd like the sequel. It's coming to an ATM near you...