Oppenheimer analyst Meredith Whitney -- one of the handful of people to predict the current mess -- says that allowing banks to move "toxic" mortgages off their balance sheets is only part of the solution to the current mess.
Ms. Whitney told Fortune that a "bad bank" plan would help banks improve their balances sheets but that the more serious problems would still be there: The declining economy will cause an ever-increasing percentage of good assets to go bad while simultaneously killing demand for the other services banks offer.
Whitney's solution? The banks need to sell the good stuff and shrink: "That's what people like you and me, what taxpayers have to do when we are in financial distress. We have to sell whatever it is we can, which is almost always our best assets, and deal with it. We can't just sell what we want to, which would of course be our bad stuff."
Whitney says that there is a buyer for anything at the right price and that the government can assist well-capitalized banks and private equity firms by providing financing. Citigroup (NYSE: C) is in the process of following that model with the sale of Smith Barney. Other banks will have to follow.
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Reader Comments (Page 1 of 1)
2-01-2009 @ 6:46AM
paul s said...
Correct. Dismantle them. There are many waiting to take there place. How can others grow when we allow these behemoths to dominate and when they demonstrate their gross incompetence we reward them because they are "too big to fail". Stop kicking the cans down the road. Pick them up and throw them in the recycle bin. Clean up the road so that others can travel.
2-02-2009 @ 7:17AM
shelleyxjr22 said...
The banks are getting billions in bailout funding. And raising consumers credit card APR's from 19% to 28%. HSBC/Direct Merchant Bank and Discover Card Services are really keeping people from paying off credit card debt. With randomly amending consumers APR rates.
2-01-2009 @ 10:32PM
Concerned Citizen said...
The banks should be treated like any other business with one exception, the depositors should be protected. They should go bankrupt. All the equity is worthless, clear out the debt and convert it to equity. The only bailout should be for depositors. Everyone else...tough love!
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