That's Going To Leave a Bruise

So much for my anticipation of at least a short term Obama bounce. You obviously know the market was down sharply today. I am not surprised that the market is heading to new lows but a bit surprised at the timing. Then again, with all the dire news on financials, can you blame people?

Look at Bank of America, one of my favorite companies to post about. Down another 29% today, and roughly 50% over the past week. Ouch! Other financials not faring much better and some a bit worse. And according to Nouriel Roubini, the prominent UNY professor who has been amazingly accurate calling this mess, the financial industry in the U.S. is technically insolvent. He expects losses for U.S. institutions over all to go to $3.6 trillion (I am an thinking closer to $2.5 trillion, but either way it is well over the losses to date) and this level puts the financial industry nicely underwater. If he is right, we are simply kicking the can down the road with our supports to date.

So now that we have given these companies trillions in cash and backstops, we are shocked, just shocked, that they have not resumed lending. After all, that is what we wanted them to do. Ooops, I guess we failed to condition our support on them doing this. That's alright, we are going to correct this now by requiring these big institutions to tell us how much lending they are doing on a monthly basis, and if they are not lending then we will, well, we will, I mean we will, heck, I am not sure what we will do.

Even if we had some leverage, like a bluff that we will no longer support them, then what? Well, then . . . they will still not lend, that's what. They need every dime we can give them for survival.

Moreover, you cannot get blood from a rock. You cannot force them, after you gave them the money, to lend it. That should have been a requirement up front. But looking at how desperate most of them are right now, where are they going to get money to lend? They already have losses eating up the money we have given them so it is not there anymore. Lending is not happening, at least not from these institutions.

So I propose taking the taxpayer money and creating the Bank of U.S. Taxpayers. It starts with no bad debts, not toxic assets, no bad business and no desire to maximize executive bonuses. We give it the money to lend. Now we do have the problem of needing to hire people who know about finance and lending to run the operation, but last I looked there were a few hundred thousand of these looking for jobs. We then lend to good companies needing money to operate and take the failing, non-lending, insitutions out of the equation. Yes, we still need to figure out how to properly take down all these virtually insolvent financial institutions, but we do not let a lot of deserving companies in need of credit fold while we wait for these companies to fail. Just my opinion, which seems to be shared by more people daily.

Disclosures: None