Word is that Mr. Geithner bombed the other day. It’s not hard to bomb when you are vainly trying to put Humpty Dupmty back together again. You can’t.
I’d argue that the way back is focus on value, and nothing else. If you want to reinflate a deflated economy, give people the ability to invest in assets. If that isn’t enough, then just give them assets and let them figure out how to increase their value.
This would be my plan, and given the opinion of the bankers these days, it would probably be popular with Main Street, and Main Street banks.
There are good loans/assets, bad loans, and loans we aren’t sure about yet. The solution should be obvious, if not politically popular.
A) Let every insolvent bank go under. Let all their shareholders and workers lose their investments and their jobs. (no bonuses)
B) Pay off every insured depositor and send them to the banks that didn’t screw up
C) Sell off every asset (loan) that is quantifyable to the highest bidder. (you have a whole slew of banks that just got a whole slew of new deposits)
D) Take the assets that back every unperforming loan (homes, businesses, buildings, strip malls) and sell them to investors at firesale prices. If need be, give the assets away.
E) Keep every “unquatifyable” loan in an “RTC style” entity until quantifyable, and then sell it.
Most of these assets have lost all of their value because they were built on the ephemeral value of 10% increases in American real estate as far as the eye can see. Any “solution” that doesn’t conform to that reality is merely an attempt to reinflate a popped and ripped ballon.
There is value, and there is complete lack of value. Focus on the value. Attempting to reignite value where there is none is a fool’s errand. Right now, the most value-less thing is the stock of banks and investment houses that invested in this crap. Step one begins with letting them go under.