Quote:
Originally Posted by Baraka_Guru
dippin, I guess it's just hard for me to wrap my head around how bad it is for U.S. banks right now. I suppose, then, if regulation is too much of a long-term solution for what's a crisis now, then I'd rather see the governement float loans to the banks rather than buy them only to sell them later.
These loans would be used for capitalization, but would have regulatory conditions attached to them...conditions that could later be applied in a longer-term solution.
I'm not as keen on these macro issues as I am on micro ones, so I'm not sure this could work.
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The thing is, if these loans are made at anywhere near market levels, the banks would remain insolvent. It would need to be a heavily subsidized loan with a very long due date, which in the end is basically giving them money for free.
The truth is that the process through which the FDIC guarantees deposits and so on is very similar do nationalization. Several small banks have gone under this past year, and the FDIC basically takes over, pays the shareholders and liquidates the assets.
If Bank of America, citigroup, etc were to fail, a similar thing would happen, only it would be a lot more damaging to the economy. So the idea is to either nationalize them now, save them now, and then resell them or keep giving them money. In the former case, the government at least gets a share of the bank when it is fixed. In the latter, it is like giving free money to bank shareholders.