Anonymous Creditors and Debtors...
The diagram illustrates the true function of a bank. In the small town where I grew up the bank played an active role in my life. I knew everybody in it and they knew me. My savings went as loans to finance my neighbor's car, or to me to open a bar room. If I wanted to invest foolishly, there was somebody there to caution me.
With the giant national banks there is no real customer service or connection. If the client is late on a payment, out he goes. They group him in a Collateralized Debt Obligation and that's that.
If we compound that with 19 millions other families, the country collapses from anonymous creditors and debtors.
Looting the Treasury...
My immediate gut feel was to return the foreclosed property to the home owner or renter. They would work out new payment terms with the mortgage holder. Especially when whole neighborhoods suffer foreclosure the properties deteriorate badly. If they enter a resale market, the re-saler will often pay the bank $150,000 or $200,000 for 100 properties. He's lucky to sell them for $3000 or $4000 apiece.
Failing this, the first order of business is to re-institute the Glass-Steagall act of 1933. This would sever the ties between banking, investment and insurance subsidiaries. Then, the regulators could fire management, break up the bank operations into salable pieces and bankrupt the section that held toxic securities.
As soon as the present intact banks benefit from Federally guaranteed prices for toxic instruments, they will plunder the USA.
The Sins of Tim Geithner
Arianna Huffington: Tim Geithner's actions throughout his career, including his time as Treasury Secretary, are proof that the toxic thinking that got us into this mess is part of his DNA. That's why every proposal he comes up with is déjà vu all over again -- a remixed variation on the same tried-and-failed let-the-bankers-work-it-out approach championed by his predecessor, Hank Paulson.
The Reconstruction Finance Corporation
The alternative course, which is winning converts across the political spectrum, is a variant on the Reconstruction Finance Corporation of the Roosevelt era. With an R.F.C. temporarily taking over the insolvent banks, you wouldn't have to bribe hedge funds and private equity companies to speculate on toxic securities. Government would take over zombie banks and use government auditors to determine just how much new money was required to bring a vastly simplified financial system back to life. Shadow banks, loan securitization, and convoluted high-risk schemes would loom smaller, not larger. The process would have far greater simplicity and transparency. And it would be far more likely to get the banking system working again, more quickly and at less public expense. - Robert Kuttner
Roll 'Em Tide
The Bloomberg Financial channel was in all-a-flutter today. The ample bosoms of the female broadcasters were heaving with delight. Tim Geithner leaked enough of his plan to fleece and bankrupt the citizens to convince. The Wall Street bandits roared as the market soared 200 points. "We've hit the bottom! Buy! Buy! Buy!"
Is the Public Really that Dumb? Possibly
This euphoria will continue for a period of time, but ultimately it will fail. The Wall Street gang won't play the game with toxic assets until the government assumes all risks inherent in the program.