Reply #169: I just want to understand your position more clearly.

[Meldread]

So you believe the government should have bought up the banks entirely and nationalized them? You also agree with me that they are zombie banks, if I am not mistaken?

If this is the case, what do you consider to be the benefit of that approach?

Here is my point of view on how we should have handled the bailout situation involving the banks. A special type of bankruptcy procedure should have been created and the banks forced to enter it. Tax payer dollars would have been used to shore up assets stored within or held by the bank (savings, CD's, etc.), and that money returned to their customers. Mortgages would be frozen until new mortgage laws could be written. They would have then been auctioned off to non-bad banks, who could then renegotiate their mortgage with the bank who purchased it. (Guidelines for consumer protection would be set within the new law.)

There would be one overall goal in mind for the banks: Kill them and get their bad assets out of the system.

In the beginning I think we would have lost many more jobs. Instead of losing all the jobs upfront, what we've managed to do is slow the job loss down but draw it out even longer. It's the equivalent of trying to pull a band-aid off your arm. If you pull it slowly, it hurts a lot as you pull out hair after hair. On the other hand, you can rip it off quickly. It still hurts, but the pain is all upfront, you can recover and get over it much more quickly.

Killing the bad banks probably would have had us flirt with a depression, but it would have been relatively short, and no where near as bad as the Great Depression. Once the economy reached its equilibrium we would have resumed growth more rapidly, and those that lost jobs would have been able to find new ones sooner.

The credit market is still not lending the way it should, because they are still not sure how much cash they have on hand to lend. Outside of psychological factors, no one is still sure how much garbage is on the books and what it'll ultimately end up being worth. Thus, giving the banks money was a bad idea: it does them no good because they are not sure how much money they need.

This hurts small and medium sized banks that are good. These larger banks, in order to try and keep themselves solvent, want the business of customers that would otherwise go to them. And keep in mind if the government moved to protect customer assets (savings, CD's, mortgages, etc.) they would have ultimately moved them to a bank that wasn't bad, who then in turn would have begun lending the new cash out.

In the end, all we're doing is trying to re-inflate the bubble or at least prop it up. To give an analogy, it is as if someone's leg (the economy) had gangrene from a really bad infection. The government's solution was to try and isolate the infection knowing that the tissue of the leg was dead, in a vain attempt (a hope and a prayer) that they might find some way to save the leg. Luckily, through the injection of unhealthy amounts of antibiotics (tax payer cash) they managed to stop the spread of the infection... for now. My solution is simply to amputate the leg, because you can live without a leg – if the infection spreads the patient (the economy) could die.

So again, you believe the government should have purchased the banks entirely and nationalized them? If this is the case, what do you consider to be the benefit of that approach?