America needs a new bank right now. A bank that is able to lend to businesses as well as ordinary citizens. This is the only way to let capitalism have its full course on the bankers that overplayed their hands and now are facing the music as dictated by our market economic system. That way we would not socialize losses and capitalize profits. Free market all the way; NO SOCIALISM, NO NATIONALIZATION OF ANY COMPANY.
The government should start a new bank that would begin lending to businesses and consumers with good credit ASAP. This action is the best way to unfreeze credit and halt the continuing economic downward spiral. Even some renowned economists agreed on the wisdom of this option.
bigchin had a diary http://www.dailykos.com/... this morning that dealt with this but I’m going to say a little more of what I understood after watching Joseph Stiglitz’s position about the financial crisis and efforts to salvage it.
http://www.bloomberg.com/...
The summary of his position from my understanding is that we need a new (good) bank not a bad bank:
Stiglitz - "If we had taken the 700 Billion dollars of Tarp funds and created a "new" bank leveraged at just 12 to 1... it would have created 8.4 trillion in new credit, no problem with credit supply if we had been forward looking instead of looking backwards."
If the government steps in and buy one or more of the sound banks and use it to start lending again, other banks would come back and start lending also, and those banks that continue to refuse to lend to their customers would loose those customers to the new US Bank and thus loose their competitive advantage this bank should be publicly traded so that it competes with the rest of the banks.
Buying bad assets from the mismanaged banks would reward irresponsibility and there is no guarantee that the bailed banks would use that money to re-start the economy through lending. If anything, they are more likely to keep coming back to the government for this unending financial bonanza. We have seen their capacity to hold the government and by extension the American people to ransom by how they used of the first TARP allocation:
• On December 1, 2008, Citi after receiving TARP went ahead and bought from Spanish construction company Sacyr Vallehermoso, its highway-operating unit, Itinere, in a deal valued at nearly euro7.9 billion ($10 billion).
• We all knew about Merrill Lynch $4 billion bonus story; Bank of America’s anti labor organizing skills and donation capacity to Republican Senators’ re-election; Citi’s $50 million jet story; and Wall-Street $18 billion bonus story.
If the government should acquire say two or three banks with national reach and put half of the $350 billion TARP fund in it to lend directly to businesses and consumers, this whole problem of frozen credit would be solved and the economic decline would stop as economic activities pick up steadily.
President Obama should do the following in addition to everything he has been doing to resuscitate this economy:
- Start a new bank with national immediately (it should remain publicly traded so the government could exit smoothly anytime it wants).
- Re-impose the uptick rule for short-sale on the Stock Market ASAP
- Organize and regulate the CDS(credit default swap)
The first action would unfreeze the credit market, the second action would stabilize the stock market, and the third action would liquefy the illiquid CDS market and allow the banks to sell the toxic assets in the market to the highest bidders.
This writer lives in CA and works in the financial industry a Vice President and Chief Financial Officer of a Los Angeles based Community Development Financial Institution.