Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.
One way or another — a governmental “bad bank” to buy toxic mortgage and other asset-backed financial assets and get them off US banks books, or governmental guarantees against certain levels of excess loss on such assets effectively separating them from the rest of the banks’ balance sheets — the Us needs to act quickly and decisively at the heart of the financial and economic crisis. No time for blame, or who didn’t do what, or how impossible it seems to fairly price these assets or calculate the risk premium on an insurance package. Pick a number!
Maybe the number should just be whatever the Congress and White House decide to put to the program overall — since there is only one ‘bidder’, let the bidder set the price. pouring money into bank equity, which had only a short-term palliative effect, has clearly not been a good deal for the taxpayer, and it will henceforth come with so many stings as to be relatively useless equity for the banks.
One way or another, we need a ‘”Yucca Mountain” for the toxic waste to let normal financial processes begin to take hold; ringfencing these assets either by a national “bad bank” or a national balance sheet insurance scheme is a better solution than the three alternative: outright nationalization of the leading US banks (which we are creeping towards like sleepwalkers in the Fun House); doing nothing and letting the chips fall where they may (isn’t that where we came in, with Lehman Brothers); or waiting for “private capital” to step up (so far, no one has followed Buffett’s lead).