News has been circulating that the US government / FDIC / Treasury wants to create a bad bank to absorb the toxic assets of US institutions that are on the verge of insolvency.
I have two questions for the new administration:
1) Wasn’t this the very idea that inspired the “Troubled Asset Relief Program” or TARP? The last implementation of a “TARP” did anything but buy troubled assets. It seems as though $350B+ of Treasury funds were thrown to the wayside for a temporary relief in the credit chaos that was building.
2) Hasn’t the Federal Reserve become the de facto “bad bank” with its massive balance sheet of troubled assets? Is there a reason to create a second, US government-backed version of the same concept? If so, how does this quell the problem of bad risk management by the failing institutions?
There comes a time when the path least explored may be the most logical. We are reaching a threshold whereby future generations are having their potential prosperity sacrificed to save a financial infrastructure that is paved with greed and selfish intentions. Banks should not be given limitless liquidity in the name of short term stability.
A bad bank facility is by no means a solution and I feel that there is little chance of success. Hopefully I’m wrong and the US economy can be stimulated, but from what I’ve researched central planning is rarely successful. The worst part is those in most need of help have largely been ignored, which is both immoral and absurd. How can we regain the confidence of the consumer if they are being left out in the cold during the worst financial storm since WW2 if not the Great Depression?
Meanwhile, traders are liquidating US government treasuries and buying gold and silver. Clearly the “smart money” has an idea that inflation should be feared looking forward.