One of Chris Dodd’s more recent bright ideas is to set up a government bank to buy up all the toxic mortgages that he helped create with his “home-ownership is a God-given right” schtick. Apparently, not everyone thinks that is a good idea. Not even lefty investor George Soros:
That leaves the second issue: what to do with the toxic assets currently held by financial institutions. The idea d’jour that has been floated around is the creation of a “bad bank”that would own all of the bad mortgages and securities. But that’s not necessary. There have always been mechanisms within easy reach, via either the temporary suspension of certain regulations or very simple Congressional legislation, which could take care of both the existing bad assets and the recapitalization of banks — relying not on the federal government, but on the private sector. From Soros:
For these reasons it would be a mistake to take the “bad bank” route, especially when there is a way to adequately recapitalize the banks with currently available resources. The trick is not to remove the toxic assets from the banks’ balance sheets but instead put them into a “side pocket,” as hedge funds are doing with their illiquid assets. The appropriate amount of capital — equity and unsecured debentures — would be sequestered in the side pocket.This would cleanse bank balance sheets and transform them into good banks but leave them undercapitalized. The same $1 trillion that is now destined to fund the bad bank could then be used to infuse capital into the good banks.Although the amount needed to recapitalize the banks would be more than $1 trillion, it would be possible to mobilize a significant portion of the required total amount from the private sector. In the current environment, a good bank would enjoy exceptionally good margins. Margins would narrow as a result of competition, but by then the banking system would be revitalized and nationalization avoided.
This seems to be an intelligent way to solve the fundamental problems currently freezing the credit and housing markets. It is also comprised of programs that the Democrats have not promoted or included in their ‘stimulus’ bill, which places Soros in opposition to the Democrats – an odd place for him to be.
Instead, Democrats like Harry Reid, Chris Dodd, Nancy Pelosi, and Barney Frank – with assistance from Obama Administration members Timothy Geitner at Treasury and Sheila Bair at FDIC – seem intent an nationalizing both the housing sector and the banking system.
Let’s hope that Soros and the Republicans can convince them otherwise.
How do people like Chris Dodd end up running our economy?
Via American Thinker.
Cross-posted at The Artful Doddger.