28 January 2009

George Soros Slams Bad Bank Concept

George Soros has come out against the "Bad Bank" rescue scheme. He thinks that it will not save banks, but instead create "Zombie Banks", the walking dead which will not be able to offer meaningful credit, so he proposes a "Nationalization Lite".

I prefer the real nationalization, but I agree that the "Bad Bank" concept won't fix anything.

By way of background, the current version of this is that the FDIC will buy toxic assets, at maturity value from banks, as opposed to current market value.

So, at its core it means overpaying the banks for their assets, so that $750K mortgage on a Miami condo currently worth $150K is purchased as if the underlying assets are still valued at $750K.

You can't buy at market value, because the banks would then be insolvent, which is why more and more people are suggesting that the banks be taken over, and then the government would handle disposal of those assets.

It's what the FDIC has done for years, and the RTC did with the S&L crisis, and what the Swedes did in the 1990s, and the government turned a profit in about 4 years.

It's welfare for the rich.


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