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That is why the New Good Banks / Bad Old Banks plan pulls out protected bank depositary liabilities to be the liabilities of the "New Good Bank" and the sound assets  to form its assets, makes up the shortfall if there is one, against a Senior stake in the Bad Old Bank ...

... in the case that there are more sound assets than deposit liabilities to be protected, the surplus sound assets can be left as a part of the asset base of the Bad Old Bank. Shareholders are still likely to get wiped out, but bondholders in those institutions will get more cents on the dollar ...

Then the Bad Old Bank can be moved from receivership to bankruptcy, and the management of the Good New Bank can be taken over via an LLP/LLC with an existing bank that managed itself with enough prudence to be solvent in the middle of such a severe recession.

Geithner is protecting the wrong part of the finance sector ... which is not surprising, since he is from the Anglo Disease part of the finance sector ...

... since finance companies that survive will have trimmed their sails substantially, small and medium sized businesses are going to need a functioning banking system if they are going to be able to respond effectively to any upturn in demand that should occur and consumers are going to need a functioning banking system to be able to respond to any stabilizing of household income.

Indeed, if we are going to hope to bring as many banks OUT of receivership as we will need to do, it will have to be in the context of a recovery, and waiting to clean up the mess until the recovery happens means we are caught in a vicious circle, since the lack of confidence in the solvency of large money center banks makes recovery less likely.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Mar 21st, 2009 at 07:48:02 PM EST
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