Bernanke looks to create 'bad banks'
To further strengthen the financial system, Federal Reserve Chairman Ben Bernanke is proposing a plan to create "bad banks" to buy up bad assets in exchange for cash or equity. What's a "bad bank"? Ashley Milne-Tyte reports.
Federal Reserve Chairman Ben Bernanke speaks to an audience at the London School of Economics. (Leon Neal/AFP/Getty Images)
More on The Economy, America's Financial Crisis
TEXT OF STORY
SCOTT JAGOW: Today, Fed Chairman Ben Bernanke gave a speech at the London School of Economics. He said Obama's stimulus plan will give a "significant boost" to the economy. But it won't be enough.
He wants the government to give banks -- brace yourself -- more money, and to help homeowners in trouble.
Bernanke also brought us back to the toxic assets burning a hole in bank balance sheets. For that problem, he thinks we should create "bad banks." You'd think we've had enough of those. But Ashley Milne-Tyte explains what Bernanke means.
ASHLEY MILNE-TYTE: When the government started pumping money into banks back in October, it left it up to the institutions to save themselves. By creating bad banks the government will be taking matters into its own hands.
Erik Benrud teaches finance at Drexel University.
ERIK BENRUD: Well, in this case, they would actually be creating entities that would be distinct from the original banks. And they would just simply be buying assets that they would put into a portfolio and presumably try to manage.
Financial firms could sell their dodgy securities to the government's bad banks. They'd be paid with a combination of shares in the bad banks and cash. And there's the risk for you and I. At least some of that cash would be taxpayer money.
Dennis Logue is an emeritus professor at Dartmouth's Tuck School of Business. He says some of the assets, like rotten credit card loans, aren't ever going to make money. But if all goes well, others will appreciate in value and could turn a profit for the government. Either way, he says, creating bad banks will ultimately help ordinary Americans.
DENNIS LOGUE: Meanwhile, you leave the regular bank intact and the role of the senior managers in the regular --- in the good bank -- is to go out and make loans and figure out which companies they deal with can be helped, which consumers they deal with that can be helped.
He says the government's bad banks could turn out to be not so bad after all. They could let financial institutions get back to their regular jobs and get the economy's wheels turning again.
In New York, I'm Ashley Milne-Tyte for Marketplace.
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From Salt Lake City, UT, 01/14/2009
Since we've already committed money to these idiots, I suppose we can try this too, but we need to get fire sale rates. No cash beyond 90% of current market rates for Houses in each market, credit cards for collections, or going rates for a used SUV on auto loans.
From Tel Aviv, AL, 01/14/2009
Chairman Ben S. Bernanke, Let's Abolish Credit
All of Our Economic Problems Find They Root in the Existence of Credit.
A Credit Free, Free Market Economy Is Possible.
Both Dynamic on the Short Run & Stable on the Long Run.
I Propose, Hence, to Lead for You an Exit Out of Credit:
Let me outline for you my proposed strategy:
✔ Introduction.
✔ The Numbered Account.
✔ The Credit Free Money: The Dinar Shekel AKA The DaSh, Symbol: - .
✔ Asset Transfer: The Right Grant Operation.
✔ A Specific Application of Employment Interest and Money.
[Intended For my Fellows Economists].
If Risk Free Interest Rates Are at 0.00% Doesn't That Mean That Credit is Worthless?
We Need, Hence, Cancel All Interest Bearing Debt and Abolish Interest Bearing Credit.
In This Age of Turbulence The People Want an Exit Out of Credit:
An Adventure in a New World Economic Order.
The other option would be to wait till most of the productive assets of the economy get physically destroyed either by war or by rust.
It will be either awfully deadly or dramatically long.
A price none of us can afford to pay.
“The current crisis can be overcome only by developing a sense of common purpose.
The alternative to a new international order is chaos.”
- Henry A. Kissinger
Let me provide you with a link to my press release for my open letter to you:
Chairman Ben S. Bernanke, Quantitative Easing Can't Work!
I am, Mr Chairman, Yours Sincerely,
Shalom P. Hamou AKA 'MC Shalom'
Chief Economist - Master Conductor
1 7 7 6 - Annuit Cœptis
Tel: +972 54 441-7640
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