Financial plan won’t include “bad bank”

According to a report on Reuters, the new “TARP 2.0” bailout package won’t include a provision for a “bad bank”.

A so called “bad bank” is an idea that has recently been floated.  In effect, the bad bank would buy up all the toxic crap from other banks, leaving them with nice clean balance sheets.  But who pays for the toxic crap?  That’s the problem – we all would.

Trillions and trillions would be required to buy up all the bad mortgages and derivatives.   No one – not even China – has those kind of reserves.  Even if some country had that kind of money, why on earth would they invest it in a bad bank?

Since no rational person or country would ever do that, the US government had volunteered you and me to do it.  But since we don’t have the money either, it would simply be printed out of thin air.

With any luck at all, this report is accurate and the dumb idea of a bad bank will be buried forever.  After all, don’t we already have enough bad banks?  Do we really need another one?  🙂



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