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Tonite I will be on Fast Money with Dylan Ratigan on CNBC at 5:30pm discussing with the crew on the problems with the Bad Bank idea.
My suggestions:
1. Stop interfering with the Markets! Nationalizing banks isn’t market interference, keeping these mortally wounded banks alive is! Stop pussyfooting around and admit the truth. The market knows it, investors know it.
Let the FDIC do its job. That is:
2. Temporarily Nationalize the Banks We know they are insolvent, and cannot survive without taxpayer money. Spending a 150% of their market cap for an 8% share is absurd.
Wipe out the debt, liquidate bad common holders, fire the Board and management, appoint new competent, risk sensitive management. They have 6 months to spin out a 10% stake in each of their holdings, followed by the rest within 5 years (10 at most);
3. Taxpayer owned: Once nationalized, that 10% spin out of the components parts would be in the form of prefered to taxpayers! For BAC, you would spin out Bank of America, Merrill Lynch, Countrywide, plus the “B/A Toxic Holdings I & II” For Citi, it would be Travelers, Citi, Smith Barney, Citi Toxic 1 & 2, etc.
4. Now Recapitalize: With the toxic waste off of the books, you can easily recapitalize the banks. Give the old creditors a “sweetheart” deal — they get a 10% stake also, but only if they buy a matching amount in the new bank.
5. Align Compensation with Long Term Profitability: Stop rewarding traders for short term gains despite long term losses. Stop paying taxpayer monies out as dividends. Bonuses must be a function of the long term health of the company — not monthly violatility.
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UPDATE Here is the Video:
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