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.

If you own shares in Citigroup (NYSE: C) or Bank of America (NYSE: BAC), then you've suffered a huge loss this year -- 47% and 54% respectively. But both stocks are rallying today -- Citi is up 18% and Bank of America rose 13%. If you've been holding the stock, the question today is whether to sell into today's rally, hold, or buy on hopes that the stock will rise from here. The bottom line is that you should sell if you think that the bad bank will cram down common shareholders.

The reason for today's positive stock price movement comes from rumors that the FDIC may form a "bad bank" that will somehow relieve Citi and Bank of America of hundreds of billions worth of toxic waste on their balance sheets. Next week, the Obama administration may announce a plan that would let the FDIC manage the bad bank and sell FDIC-guaranteed bonds to finance the purchase of the toxic waste.

There's at least one problem with the bad bank idea. How much will the FDIC pay for the toxic waste? If the price is higher than the value of the assets on the banks' books, then the FDIC will take the loss when the asset is sold below that level. If the price is below the value on the banks' books, then the bank will have to take a write-off and it will need to raise capital, which it can't do. So it won't sell the asset.

There is talk by the Federal Reserve, the U.S. Treasury, the U.S. Congress and bankers about creating a "bad bank" and let the government use the next tranche of the bailout money to take the losses from the banks and put them in this bad bank.

First of all, why anyone would want to create something "bad" is beyond a rational person's comprehension. Why not create something "good." Why not take the second half of the TARP money and create a "good bank,"one that is solvent, a bank that everyone can trust, a bank for the future not the past. If we create a "bad bank," there is no future. The money is just wasted again.

It is old news that fixing the problems at America's large banks cannot be completely accomplished unless the toxic assets and toxic loans on their balance sheets recover their value or are sold to other entities. A recovery in value is almost out of the question, at least for several years. Too much of the value of the paper is based on the housing market and the general economy.

The federal government has been adroit in dodging the issue. Paulson elected not to buy bad assets with TARP money. He put the money directly onto banks balance sheets instead. When the failure of value in large pool of assets at Citigroup (NYSE:C) began to falter, the Fed agreed to share losses that the bank might incur on the bad assets.

It has started to dawn on the Obama economic and financial team that none of the past actions has addressed the real problem. The creation of a national "bad bank" to take in most of these assets and allow banks to go on operating without them may be the only way to create a safety net under the entire credit system.