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Democrats Start Grasping Banking Reality   February 4th, 2009
Sen. Schumer D-NY admits 'bad bank' proposal might be too expensive       


More observations...

Given enough time economic realities confront even liberals. In today's example of that, Senator Charles Schumer (D-NY) admitted that a "bad bank" proposal may be too expensive. He's proposed an alternative solution.


Officials are considering a government-run "bad bank" that would take on the bad debts and investments of financial institutions...

On Tuesday, Sen. Charles Schumer, D-N.Y., a member of the Senate Banking Committee with close ties to Wall Street, warned against the "bad bank" idea saying it could be too expensive and the government would have a difficult time setting a value on the assets. He instead endorsed guaranteeing bad assets at a value lower than what banks have on the books.

As I said in the past, I, too, believe that a "bad bank" proposal would be too expensive. In addition, as Senator Schumer said, it would be difficult to set a value at which the government should purchase the toxic assets.

Schumer's idea of guaranteeing the toxic assets at a lower value is a step in the right direction. However, it doesn't resolve the question of how to value the assets since a value still needs to be determined so the government would know what lower value it's guaranteeing.

I still believe the best idea, assuming the government is to get involved, is the insurance idea I previously outlined. But Schumer's idea of guaranteeing the assets is a big step in that direction--all we need is for Schumer to add the idea of the banks paying premiums to the government in exchange for that guarantee and he'll have pretty much come full circle to the Republican proposal.

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