US Banks

Today Bernanke highlighted that which most of us know already - the health of US banks is THE key to a recovery. So far, all we can really say with accuracy is that measures taken Q4 prevented a melt down. But that’s it.

There are several proposals on the drawing board for the banks. One solution may be to model on past successes: the S&L and banking crisis of the 80's and 90's. Policies implemented then worked. In 1989 Congress provided funds to close insolvent S&L’s and created the RTC to work out remaining troubled assets. Likewise, the FDIC was able to close insolvent banks without direct taxpayer assistance. Both agencies bought capital certificates from problem institutions that the agencies thought viable. (The rest were junked) They paid for the certificates by issuing FSLIC or FDIC senior notes. As the banks recovered, the certificates were redeemed in exchange for the notes. We will see, but our guess is that some variation of this may be adopted.

Or, perhaps outright nationalization for some. Take them over and recapitalize with taxpayer money. Fire current management. Once restructured, taxpayers might actually make a killing. Can the government pull this off, do they have the talent? Not sure, but the FDIC has a pretty darn good history of seizing insolvent institutions.

And for the rest of us? The rest of the economy will heal itself and in spite of the so-called stimulus package. The "stimulus" package amounts to interference and is at best a wash. It is also a fraud. The more government interference in the US real sector, the longer the recovery. Next, voters must tell their respective legislators to stop this and that "bailout" (now the pilots want to line up). These are not bailouts, merely instruments to delay the inevitable. Naturally the auto sector comes to mind. Our initial response was "Drop Dead". We were right. These companies carry a fatal flaw. They will continue to try to panic Congress - if they go, it all goes. But of course. They’re looking out for their own necks.

So should we by denying them theirs.

Robert Craven