THe "Bad Bank" idea will not die.

[JohnWxy]

Public seen more at risk in public-private toxic fund
Government guarantees and public financing under consideration in fund


http://www.marketwatch.com/news/story/Public-has-more-risk-public/story.aspx?guid=%7B3C374173%2D407C%2D4A88%2D9D76%2D436ECEE6116E%7D
As part of the program, expected to be released shortly, the government is seeking to encourage hedge funds, buyout shops and other private investors to purchase illiquid mortgage securities by providing the purchasers financing and guarantees.

And while details aren't out yet, it's likely that the public risks will outweigh any risks private investors will take.


A complementary approach that the Treasury's considering would have government officials provide financing to private investors in toxic assets. In this approach, the payments that investors receive from the mortgage securities would go toward paying off a loan the government provides them.

If the investments make money, the government gets paid back. If the illiquid mortgage investments go into default, the most that the investors could lose would be their down-payment. As part of this approach, the government can't come after the investor to pay the rest of the loan.

With this kind of loan, which is known as "non-recourse," the government could seize the mortgage security if it goes into default and place it into a special-purpose entity to administer it and other loans that defaulted.
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Screw this idea. I've got a better one:

Better for the Government (all of us) to buy into 1 or 2 large failing banks injecting capital into them and becoming the owners of said banks. These banks will provide the facilities and personnel to start the "People's Bank". through this entity the government - rather than giving money to the banks - will loan money directly to the businesses and people who need to borrow money. Credit worthy borrowers will be able to get loans.

After the People's bank is set up common shares will be sold to anybody who wants to be a shareholder (thus, it will be a publlic-private partnership. I don't think we'll have any problem getting investors.). The banks will be left alone to do their freemarket thing (without any more government assistance) to get out from under the toxic loans they own. We certainly wish them luck. In the mean time all those who want a loan will know they have somewhere to go to get one. And the economy can go about it's business of growing again.

Several years out we can start selling off the shares of the People's Bank so that eventually it will become solely privately owned. It may be necessary to break it up into several banks before selling it entirely to private ownership - so we dont' getinto a too-big-to-fail situation again.

This way we get money to those who need it, and we let the banking community (except of course for the two banks we take over) take care of it's toxic assets on it's own. I like it!