There's been a lot of talk about the government establishing a "bad bank" where the banks can dump all of their troubled loans and other ugly money to clean up their balance sheets. I think the proponents of this strategy have it all wrong.
Instead of funneling all those billions of dollars into banks that have proven they can't manage money properly, the government should put its billions into a good bank and use that to produce mortgage loans and refinancing, and credit lines for small businesses.
The banks should be left to figure out how they're going to get out of the mess they've greedily gotten themselves into. They've clearly shown that they have no regard for the so-called Mainstreet, and will only use the money to clean up their balance sheets, protect their pay and bonuses. Very little of that money will make its way to Main Street. It's like oil and water; there's no connection between the banks and Mainstreet anymore.
Why should the banks be bailed out when Mainstreet, weighted down with their debts until they die, is not getting bailed out, instead thrown out onto the streets to live in cardboard boxes?
And why did the banks push so hard to restructure the bankruptcy laws last year -- because they saw this disaster coming before anyone else did and they were doing some preventive crisis management.
After a few years, the Good Bank could be sold to the private sector after the Bad Banks have climbed out of their holes on their own, at a tidy profit for us taxpayers.