Thursday, January 29, 2009

The Bad Bank Idea or Shit Sandwich?

Wouldn't it be nice to make a bad financial decision and then be able to take the loss and put it on someone else. I didn't go out and buy a house that I couldn't afford. I didn't spend like an idiot and not save at least 10 percent of my income. I actually was like a Chinese person and saved over 30% of my income. So it's not unfair for me to ask the question, why should I the responsible taxpayer have to pay for this banker bailout? The banks are going to be able to take all of their non-performing assets and put them on the taxpayer balance sheet. These non performing assets are not wanted by anyone in the private investment community for any price. That alone should raise the red flag. So the banks will sell the taxpayer all of their shitty assets at seventy cents on the dollar. These assets are worth zero. Most people go to jail for doing what these bankers did.
Back in mid 2008, Merrill Lynch sold roughly 31 billion dollars of toxic paper of which 21 billion was already written off as losses. An investment company bought the toxic paper for roughly 6 billion or sixty cents on the dollar. The information that wasn't in the headline was Merrill Lynch had to finance 75% of the purchase and there was a clause that Merrill Lynch pay for any losses incurred. If you do the math the company paid 1.5 billion with no risk because Merrill Lynch had to bear the losses. 1.5 billion divided by 31 billion equals less than 5 cents on the dollar. I'm assuming all of the investment companies were doing this and all of the gains were fraudulently manipulated. Bear Stearns was taken over and Lehman Brothers failed. Goldman Sachs and Morgan Stanley had to become bank holding companies and Merrill Lynch was bought by Bank of America. My point is that bad banks should fail and good banks should take over the bad banks. I the taxpayer want no part of taking another bit of the shit sandwich. Debt is the problem not the solution.

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