FDIC’s Sheila Bair on ‘Bad Bank’ Plan

There is a real eye opening statement in this interview..

Talk about the Federal Reserve creating a “bad bank” to buy toxic assets from financial institutions has been floating around. Kai Ryssdal discusses with FDIC Chairwoman Sheila Bair how the plan would work.

Here is the part:
Blair said, “Well, I think they will certainly be worth more than the current valuations. I think that is the assumption. And I think that’s true. I mean, at the FDIC we sell troubled bank assets all the time. You know, when banks have to be closed, we take over as a receiver, so we’re pretty familiar with the market right now. So we think that that is absolutely true that the assets are worth more than the current market conditions assign to them. And so that, yes, over time there will be significant profits from these.”

Now, this was the original plan back in October 2008. It is also the plan Berkshire’s (BRK.A) wanted in on and the plan and fellow billionaires Wilbur Ross and John Paulson have recently offered to participate in. It is also the plan I argued for here in October several times.

This goes to the whole folly of the second batch of bailout funds. One can argue the first was necessary to stop the collapse. Step two and three ought to have been removing some of the worst assets and then modifications to market to market to reflect better valuations of all illiquid securities.

Instead we have thrown more money down the black hole and are only now considering MTM alterations and getting serious about the “bad bank” idea. Meanwhile the tab is over $1 trillion up from the initial $350 billion spent.

Such a waste of resources…

Disclosure (“none” means no position):

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