The good-bank/bad-bank idea has run into difficulties, and this is a good sign that our children's future is not yet completely ruined.
You may hear some noise about pricing assets or other technical issues, but the only difficulty that really matters is that the full force of the United States does not have enough money to buy all these assets - at least not without ensuring a miserable existence for our children.
I must admit to having a certain morbid fascination as to how they were going to pull off the good/bad bank trick. If I were a rat, I'd probably temp the snake thinking, he can't eat me. No way am I getting past his head. No way!
Using real simple terms, here's where things stand right now; the main obstacle toward starting down the road to economic recovery are the big banks. It is the US economy vs. the big banks.
One reason the banks are able to make such formidable obstacles is due to the enormous help they receive from government agencies such as the Treasury (and the OCC under Treasury) and the Fed (quasi-government).
Some people make the mistake of thinking the government ultimately has the good of the people in mind, even if they have an odd way of showing it. This is not true in all cases. It's not always a case of bowing to special interests; sometimes the government actively formulates policies it knows will only benefit a few at the expense of the many.
Indeed, the government may pitch some of their actions during this crisis as looking out for the taxpayer, but anytime this happens, you have to look for the lies or the true motive, because surely they are there.
For example, government agencies have collected warrants (stock options) from the various banks that we have capitalized, and this was pitched to us as "our investment". It was to make us feel as though we got something for all that money. The neat little sleight of hand that took place in all this might reveal itself soon as these warrants magically morph into weapons to be used against us. Tim Geitner, who is a friend to the banks and not to you or I, already has whispered how terrible it would be if the government were to resolve a bank in such a way that wiped out taxpayer equity investment.
Excuse me, Fucker? I'm not sure I heard you correctly.
Do you see how subtle that is? By taking the warrants (stock options), the pro-bank government agencies can now claim that wiping out the shareholders in a bankruptcy would be a terrible thing to do since the US taxpayer is a shareholder. I feel a little bit like Frodo Baggins; Yes, Bilbo, the ring is nice, but you didn't tell me it would drive me mad.
After all that money we were compelled to donate to the banks, the government is going to try and compel us to reimburse investors who hold stocks in the banks. It's called risk for a reason, assholes. Risk without risk is called special treatment and implies there are some that are more important than others in the eyes of the government.
Keep in mind that the government moved very early in this crisis to mitigate the risk to investors in the event of a run on the banks. This used to be a self-funding operation with the FDIC, but it is now backed by the full faith of the government, and many more rules were added that only benefit investors and do nothing toward getting the banks functioning again. In other words, the government has been heaping moral hazard onto the pile.
The Fed is supposed to be the lender of last resort, so when you and I have to keep bailing out the banks, what purpose exactly is the Fed serving? For anecdotal evidence of who the Fed serves, ask yourself how many times you have interacted with the Fed, or cheered one of its actions. If you thought lowering interest rates was something to cheer, then you do not know the nature of this crisis, and the disruptive nature to the business cycle that is possible through poorly managed monetary policy. Another bit of evidence is the fact that none of the banks rail against the Fed. It has to be the only agency with regulatory authority that is not railed against by those it regulates. A friend with greed, is a friend indeed.
There is a fantastic article called The Big Banks vs. America: A Roundtable with David Kotok and Josh Rosner which delves into some interesting areas.
I would like to point to exhibit B in laying out my case that the government actively assists the criminal banksters in obvious criminal activity, but first an interesting sidebar:
The Dow Jones Industrial Average is distorted.
The above link shows the effect of keeping the big banks listed as Dow components even though their stock price is below the $10 dollar informal minimum to be listed as a Dow component. It shows that if the Dow financial components of Citi, BofA, American Express, JP Morgan, and they even threw in GE because of GE Capital, if all those stock prices went to zero on Monday, then the Dow would lose 434 points.
On the other hand, if just IBM went to zero on Monday, the Dow would lose 653 points.
Malfeasance? Maybe; most likely it's just more of the ridiculous leeway afforded to the most greedy and corrupt among us.
Now, about that greed and corruption - the government loves it. It promotes it, and it tries to shield those who are guilty from prosecution - at least until it becomes too hot of a potato.
Take Bernie Madoff for example. In November of 2005, a diligent and very cautious man in Massachusetts sent this letter to the Securities and Exchange Commission. Bear in mind the SEC exists to spot and stop crime in the financial marketplace. It is one of their principle reasons for existence.
I don't know about you, but I'm of the opinion that if someone sent the SEC a report that listed 29 red flags for fraud at what they called the world's largest hedge fund, then I would have a reasonable expectation that the SEC might be bothered to take the time from their busy schedule trying to... find fraud... that they might check into any number of the easily verifiable red flags to see if there is any truth.
I don't know; maybe it was because the man not only told them what to look for, but also told them the exact steps they needed to take and who to contact to check into the matter. You can see where something like that could rub someones fur the wrong way.
Even more disturbing was the fact that this very diligent citizen was among the last to know about Madoff. He lists any number of firms and individuals who he talked with that would not touch Madoff with a 10-foot pole because it was so patently obvious what was going on if you were a financial person.
All these people knew fraud was taking place, and it took place for 14 years without anyone coming forward. Maybe they knew they would be ratted out by the corrupt weasels in the government that are entrusted to oversee these things.
In retrospect, what did we think would happen when the SEC cooked up programs such as the Consolidated Supervised Entity program, a voluntary supervisory regime for the nation’s largest investment bank holding companies.
Voluntary supervision.
I think I'll stop here before you puke on your computer. Before I do, though, I just want to mention that there is a common thread among nearly all areas of this crisis, and that is Goldman Sachs. They have infested all areas of the government that deal with the financial industry. The Treasury department has been handed off from one GS boy to another.
I could pick off one of these diaries every day for a year, and only cover a part of the SEC's and the Fed's complete contempt for you and I.
Update:
Jeff in nyc pointed out that the banks who are components of the Dow can be wiped out without affecting the broader market. In that sense, keeping them listed is quite helpful as it will provide a bit of a cushion. Thanks, Jeff.