re: #727 3 wood

Sorry for accidentally hitting enter before I put my comments in:

The pumping of cash into the banks has had marginal effect, the current estimates are that it would take another 2 to 3 trillion in cash to correct their problems.

The “bad bank” option would work better I think, except for the fact that we would be expecting government officials to be able to correctly understand how these things work.

So I figure they will go for the nationalizing approach. it would accomplish everything a lefty loves:

1. destroy the equity of the current stock shareholders, thus punishing them for owning stock,
2. give government total control of the banking system,

Joe Stalin is smiling somewhere.

It also is being seen on the left as the best way to end the bleeding, and the last thing Obama wants is to get caught up on an ongoing issue like this banking deterioration.

There’s a fourth option that hasn’t been discussed - do nothing and let the market determines what banks succeed and fail, limiting the government destruction of the economy.

A fifth option, providing the borrowers with money directly, rather than the lenders, isn’t on the table either. Considering that it was bad loans that snowballed, helping bad borrowers out of their mess by stabilizing locally hard hit real estate markets (not all real estate markets are equal - Vegas, Miami, and Los Angeles were especially hard hit (30% down or more), while other areas substantially less so), might make more sense. Giving borrowers a direct injection of capital would shore up the banks as well, since they could get a better handle on the bad debts and let the borrowers slowly unwind their own bad moves - say condition the money on those borrowers moving out within 5 years and/or some method of repayment or reimbursement/tax adjustment.

Since the banks have held on to the money that was supposed to improve the credit situation, giving the borrowers money might make more sense and stabilize the markets in a way that the banks didn’t.