FDIC May Run Bad Bank To Buy Toxic Assets

The Federal Deposit Insurance Corp. may manage the so-called bad bank that the Obama administration is likely to set up as it tries to break the back of the credit crisis, two people familiar with the matter said.

FDIC Chairman Sheila Bair is pushing to run the operation, which would buy the toxic assets clogging banks' balance sheets, one of the people said. Bair is arguing that her agency has expertise and could help finance the effort by issuing bonds guaranteed by the FDIC, a second person said. President Barack Obama's team may announce the outlines of its financial-rescue plan as early as next week, an administration official said.

Read the whole story here.

Comments

[solarian]

we better own the banks outright. all the executives are fired and I want all bonus's from first day of hire

[americaforme]

BAD BANK! Get real it's a fancy way of saying anything goes in collections, The ultimate robbery of the peoples moneys, by entering their checking accounts like the IRS. Can this be good? Give the turn keys the ok, Blackwater is waiting for those not in compliance.

[ema]

Bad bank seems to me like a bad idea. Why are we the tax payers getting all the bad and none of the good? I thought capital infusion was the way to go.

[research]

Does this include "investment banks"

With their CDO CDS derivatives?

The only solution to derivatives is to unvalidated them.

[miamia]

How can our economy function with so much debt to insolvent banks.

What a riddiculus notion. Everyone who has loans with these insolvent banks should get a notice tomorrow. Your bank is insolvent and you no longer owe them anything.

That would immediately give people money to spend.

No need for to Congress to get us deeper into debt by borrowing MORE money to stimulate the economy.

[MetryJen]

If they're smart, and I believe Ms. Bair is, they'll morph the "bad bank" into something similar to the Resolution Trust Corp. that will refinance may of the risky mortgages. There will be some losses in the beginning, but if the average homeowner is in an affordable, non-predatory loan they'll be able to repay it and the government will recoup the loss. They may even make a profit. That's what happened in the 30s and after the S & L crisis.

[Weathermaker]

"If they're smart, and I believe Ms. Bair is, they'll morph the "bad bank" into something similar to the Resolution Trust Corp. that will refinance may of the risky mortgages.­"

With what money???? The US housing market was valued at 14 trillions in 2006. Since then it dropped 25% and it has at least another 25% to go, to reach the long term sustainable model. And that sustainable model assumes an economy in good shape with low unemployment (good luck with that). When all is set and done, 7 trillions in housing value will be wiped out. So how exactly is the government supposed to come up with such a sum? And if it does, it will only transfer our real estate liabilities into tax hikes. No matter how we cut it, we are going to take a 7 trillion hair cut, no matter where it will come from.

Moving a pile of debt from point A to point B doesn't make it go away.

[1liberalconspirator]

I completely concur with weathermaker. Although I'm in favor of the nationalization of the banks and even freezing the assets of all of those who were involved in the decision making process of these entities while we investigate the matter fully; I in no way think it is sustainable to purchase bad debt at artificially high elevated levels. A drastic action is needed. You are right, we can't just throw money at the problem.

[Rule Of Law]

Unless they are somehow separating "bad mortgages;" those that folks like you and I can no longer pay on that might amount to a few billion dollars, from the mortgage security backed derivatives which are what really underlie this depression and their projected losses of 150 Trillion Plus Dollars, there is not enough money in the entire world to back any bonds that she might want to issue. This is a guaranteed loser and an even bigger rip off of the public treasury. The FED must be licking its lips at the thought of all that nice new debt on their books that we will be obligated to repay.

[Rule Of Law]

If the FDIC takes over the bad mortgages, what happens to my deposit insurance when everything goes belly up?

[farmerdan]

I want some TARP
http://www.cafepress.com/Tarpcrap

[JoeBlough]

FDIC is a government organization. These past eight years, we've seen government as being incompetent and self-serving. How will this new flavor be any different than the old flavor?

[Weathermaker]

It won't work, it will only delay the inevitable while condemning us and our kids to a high taxation future.

Citi, BofA and JPMorgan have the following balance sheet:

Total assets: 6 trillion
Total Derivatives: 160 trillion
Credit Default Swap Obligations: 16 trillion

With unemployment rising and bankruptcies increasing across all industries, assets will become more and more toxic. Home prices are at 2004 levels and have to fall a lot lower. Here's when reset mortgages will occur:

http://4.bp.blogspot.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s400/IMFresets.jpg

We are not even half way down. 2 trillion dollars will be peanuts compared to the amount of losses we face in the next 2-3 years. It is funny to hear people saying "this is not 1932". No, it's 1930, since we;re only one year into the depression.

[WeTellTheTruth]

Good post Weathermak­er......ke­ep telling the truth.

[Weathermaker]

http://www.theautomaticearth.blogspot.com/

Look at what they said during the last year. Spot on. It is pure Wall Street PR nonsense when they tell us "nobody saw this coming".

[AngieMom57]

"The US Banking System is effectively Insolvent.­"

http://www.msnbc.msn.com/id/21134540/vp/28892114#28892114

Would greatly appreciate your opinion on N. Roubini's comments..­..

[Weathermaker]

Roubini is right saying our banking system (not every bank and credit union, few will be fine) is insolvent, but he's way too optimistic. He only talks about 2009 losses, but at least for mortgage backed securities and the housing market, the bottom will be in 2010-2011.

I keep hearing various people talking about applying the Swedish model to save the banks. It's not even remotely close. Sweden took over TWO banks in the nineties when the world's economy was roaring. There were vast amounts of money available at the time to save two puny Swedish banks. Today we have so many banks in trouble, the liabilities combined are many times over the world's entire economy and we can well have losses close to the sum of all the budgets of all the governments (Iceland was an extreme but telling example).

Today governments across the world are committing money no honest person can pay. (UK everyone?) Oh, and have I told you that the US total debt is 4 times the size of our economy? In the end, math will reign supreme.

[FDRJFKLBJ]

A bad bank is a bad idea.

What this really means is that YOU, the taxpayer, is going to BAILOUT every single bank in the nation for their bad investment decisions. Most of these assets are worthless.

[Weathermaker]

"What this really means is that YOU, the taxpayer, is going to BAILOUT every single bank in the nation"

Nope. The losses in the banking sector will be much larger than the amount put into the bad bank. We will TRY to save them, but eventually we will fail. At the peak of the housing bubble, the housing market was 14 trillions. Today we're down 20% from the peak, so we lost 2.8 trillions. From 1997 to 2004 we went up 100% in home prices (inflation adjusted) and I have no doubt we will give back all of it. There are another 3-4 trillion dollars in housing losses yet to come, if the economy manages to stay afloat. This is the best case scenario. So the 1-2 trillion dollars put into the bad bank will not be enough. It's astonishing that nobody talks about this on CNBC or MSM.

[WeTellTheTruth]

Weathermaker

We both know that the business press are paid dupes-shil­ls-cheerle­aders
for wall street / bankers...­...... in fact they are not journalists at all......t­hey are actors and performers.

The only way to get the truth out is at forums like this..... many people read this forum..... more than most people realize...­. they might not always comment but they read it.

[northstar11]

if you get the bad news out a little at a time it is , they think, an easier story to sell
keeping a few grand in the mattress at this time is more than likely a prudent move.

[WeTellTheTruth]

What I find interesting is that for the last 6 weeks these boards have been filled with thousands of comments about how Obama was going to ..........­.

"stick it to the man"...""t­ell the bankers to get lost".....­"stick up for the comon man"...."s­how them who is boss"...."­no more bank bailouts".­..... and on and on and on........­.......

Now all of the sudden when Obama shows his true colors.and proposes the biggest BANK BAILOUT in history...­..........­. no one says a word.... only 28 comments instead of thousands.­..........­........ could it be you were all WRONG ?

[Viper]

NO, thye are looking for solutions to undo the damage caused by 30 years of Repug Ideaology that has blown up in the worlds face.


You cant stick it to institutions w/o sticking it to the peope that depend on the institution.


Note Citi bank new plane is no more and they were told to unload half of the ones they had.

Thats a difference.


The original TARP money was suppose to go to buying up toxic assets... Again BUSHco lied.

I believe this solution required because of dregulation and the complete gutting of every agency that had a reulatory responsibility ( whcih will take years to undo) may long term not cost anything.


Regards

[WeTellTheTruth]

So now instead of stick it to the man.......­... its save the man [bankers] because we NEED them to save us........­?

We are helpless without the Bankers...­.......?

We dont dare stand up to the INSTITUTIO­N.........­....?

Oh how things have changed in just a few days......­.

[northstar11]

what are you trying to say-- the president is not god or the neo con screwup is much bigger than anyone imagined.

[eladora]

NOOOOOO. These assets need be set completely aside of any existing agency . That way we can get a true measure of success . If you put them with other failures then we will never truly get an
exact picture of how the TARP worked. If they put them in the fdic then we will only get the news they want us to get. Let the fdic continue to handle the banks they take over.
KEEP THIS SEPARATE>
Transparency and exact numbers--that is what this needs.

[drymartini1]

hey its only money !! Let the govt. buy all the toxic assets. US has plenty of money anyways !!

I love the idea :)