Why 'bad banks' might be a good thing

Marketplace Senior Editor Paddy Hirsch explains Fed Chairman Ben Bernanke's latest plan to get the economy moving -- and the risk involved.

PIIGS

Five little PIIGS. Senior Editor Paddy Hirsch explains why problems with certain European countries' sovereign debt could blow the house down.

How the big banks make the big bucks

We keep hearing the banks aren't lending. The truth is they are lending, and making a lot of money doing it, thanks in large part to one very special borrower. Senior Editor Paddy Hirsch reports.

Ratings conflict

Ratings agencies are paid by the sellers of the securities they rate. Critics say there's a conflict of interest there.Senior Editor Paddy Hirsch explains.

Look out below!

Commercial real estate is giving Ben Bernanke a big headache. Senior Editor Paddy Hirsch explains why it's such a threat to the economy.

Interest rates

Confused about the theory of how interest rates can affect economic growth? Senior Editor Paddy Hirsch is here with a handy analogy.

Hostile takeovers

We all know what a takeover is. That's when one company agrees to be bought by another. But what happens when companies don't agree and the takeover goes hostile? Senior Editor Paddy Hirsch explains.

Credit default swaps? They're complicated -- and scary! The receipt you get when you pre-order your Thanksgiving turkey? Not so much. But they have a lot in common: They're both derivatives. Senior Editor Paddy Hirsch explains.

Bonds, notes and bills

So much government debt! But what's the difference between the Treasury's bills, notes and bonds? Senior Editor Paddy Hirsch explains.

Inflation

Most economists agree that inflation of about 2% or 3% annually is a natural function of a growing economy. But people are worried government stimulus measures could spark much higher inflation. Senior Editor Paddy Hirsch explains

High-frequency trading

High-frequency trading is creating a ruckus on Wall Street. Marketplace Senior Editor Paddy Hirsch explains what high-frequency trading is and why some people are up in arms about it.

More Whiteboard videos »

Comments

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By Donald Ballard

From Battle Creek, MI, 09/13/2009

A really intelligent person, is the kind, who can take a very complicated subject and simplify it, so that a layman can understand it. You do that.

By Paris Rosenberg

From O'Fallon, IL, 01/26/2009

Paddy, I stumbled onto this web site by accident. Now I'm hooked!! Keep up the good work--I like the analogies which make complex models simple to comprehend. P.S. Love the accent.

By Christopher Hylarides

From Toronto, ON, ON, 01/17/2009

Daniel Depperman, Patty is Irish, which is why he pronounces some things differently. There's nothing wrong with it.

By Mike Thomas

From Kalama, WA, 01/16/2009

I would prefer to simply nationalize the banks that are unable to sustain themselves. If as a taxpayer, I'm to assume the liabilities of their mismanagement, I should also be able to offset that with whatever the assets amount to be.

We could contract for management, and "dollar to a donut" we couldn't do worse than they have done with the management and boards they have now.

We could also then eliminate the offshore tax havens that they use.

By David Seaton

From Jacksonville, FL, 01/15/2009

I think this is a horrible Idea.
The problem with the expedition metaphor is that the Banks get to escape their bad dealings with little consequences. At least if the bad banks are owned by the Holding company they have to deal with the Toxic debts in the future.
If we the tax payers are having to float the these debts, especially with owning the Assets, these US owned Bad Banks are going to be stuck with peoples homes that are still foreclosing and will have to figure out how the sell the properties. To holding companies investors that can sell them out? The problem is, these families will be out on the streets, unable to refinance for another home.
What is the real world impact on this?

By Daniel Depperman

From CO, 01/14/2009

Paddy Hirsch: Your whiteboards are well-done, informative and fun. Cache is pronounced with an 'a' sounding like the 'a' in bad. Toss out the rule that you pronounce vowels long with an 'e' following. Remember it's english, where rules are made to be broken, and anyway, cache probably comes to us from the french, and it's ok to break rules with foreigners, as we're finding these days. Anything goes. Also you used 'you and I' in an objective role, so it's 'you and me'. I is subjective. Now to get to today's whiteboard on 'Bad Banks'. There are also Bad Ideas, and this is one. These so-called toxic assets are really those derivatives composed of numerous instruments, some good and some with near zero likelihood of ever regaining value. So instead of grabbing the instrument wholly, why not simply(simply??) take the damned things apart and cut away the dross, much as one separates those parts of ingredients that we don't want to add to the recipe we are cooking, from those we want(yum), and tossing the bad 'out'. If banks are going to get the toxics off their balance sheets thre is more than one way to do it. Of course then the banks/investment houses/etc will face repercussions in substituting the concept of worthless for toxic. They made lousy choices. Let them acknowledge it. They are like a passel of alcoholics who can't admit their addiction and thereby don't learn the proper behaviour they need to keep from injuring their families and others--like me for instance--all over again.I'm a mere investor. And there are NO guarantees it Won't Happen Again. I balieve tahe government protects them partly because many of the banks involved are partner banks in the federal reserve system. The fed is complicit in this problem,and half measures,like 'bad' banks just serve to prolong the agony, and force the treasury to print more money, representing taxpayer/citizen wealth, and increasing our indebtedness for a problem we didn't cause. The US as you know used to be a productive, creditor nation. We will never be that again so long as ideas like these hold sway. You know the total 'value' of all the derivatives in the world is 2/3 of a quadrillion dollars. What is going on here? Meanwhile, back in the 'real' world the natural environment has been battered by what we have done to it and may not be able to support our depredations for many more years--within our lifetimes. All of the major fish foodstocks, and whales, sharks, and more are down to fractional numbers from which even under the best of conditions may never recover. There are at least 7 'vortices' in the world's oceans where for hundreds and more square miles every inch is covered by non-degradable plastic and things like rubber flip-flops. Sea birds, fish, turtles, and even more seriously zooplankton are dying by eating tiny fragments of the plastics which then get stuck in their digestive systems. Of course when zooplankton is greatly depleted all larger sea creatures have less to feed on. As you can gather there are a number of threats to the marine food supply. And then there are the 'dead zones' which are increasing in size and number throughout the world's oceans. Oxygen doesn't exist in these zones. It has been depleted by a number of different causes. And IF phytoplankton takes a big hit, that plus the clearing of forests all over the world( luckily there are still massive stands of boreal northern forests that represent so I hear, 1/3 of the supply of oxygen) that threatens the planetary oxygen supply. I don't think it will all drop at once to levels that can't sustain us. Sea level oxygen will get thin as at high altitudes. Perhaps Exxon will become Oxxon, selling us gasping humans who can afford it, bottles of oxygen. Clever people will come up with nifty snap-in valves so you can change bottles rapidly. Environmentalist will complain about all the throw-away, spent bottles of oxygen. Plus ca change plus c'est la meme chose. The planet is in serious trouble. Humans may soon be an endangered species. Now what were we saying about 'bad banks'......... Is anybody with half a lick of sense 'in charge'?

By David Tully

From Chicago, IL, 01/14/2009

As Always, I love the work Marketplace does. But, how is this a new idea? isn't this just the same as the original plan for the TARP funds?

Thanks!
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