ECONOMY: Toxic means shit!

So our government has a plan to buy up the toxic securities in banks and financial institutions, to the tune of trillions of dollars worth, so those banks and financial institutions can lend more money out to the public?

In a nut shell, banks, etc. have to have a certain amount of capital on hand to cover loans they make; if they don’t have the prescribed amount of capital on hand, they cannot make loans and making loans is their business and without loans, economies do not work.

Capital is made up of assets (+) that the bank holds. If these assets are toxic securities, then the banks cannot sell them so they become zombie assets or unusable assets and they clog the bank’s capital position so they cannot make loans.

I have explained how these toxic securities were created in previous blogs. I can rant and rave all I want to about how these toxic securities were created but they still will be assets on banks’ financial statements.

Tim Geithner wants to remove them from banks’ books by allowing banks to sell them for real money; money that they can use as capital to make loans with.

Nobody wants to buy these toxic securities because they are “toxic” – no established value or guarantee of value in the future. So Geithner will pay people to buy them?

The people we are talking about are not Joe Blow and his buddies, no these are hedge funds and other big financial powers that created this mess in the first place. Our government will loan these so called financial giants, money at nearly no interest, to buy these, lets call them “shit securities”. It will also guarantee any risk these giants may take in buying them when it turns out these securities are really worth shit.

So lets see if we all have the big picture; the taxpayer pays for shit while the big boys again, make some serious money for themselves but at least the banks are in the clear?

I am not just a pissed off taxpayer; I actually have a suggestion for our government.

Let the banks write off the shit securities they hold unless someone wants to buy them for pennies on the dollar.

Our government should use TALF (Term-Asset-Backed Securities Loan Facility) money to buy or make loans to people to buy, current securities backed by auto, student, small business & credit card loans.

You don’t see any past or present mortgage loans; you see current loans, hopefully made the normal secure way like they were in the past, and rated, correctly and accurately, according to their “real” risk potential.

Let me explain it another way. Have our government create a market for loan securities created in the “real”, financially responsible manner. Banks will make those loans and sell them into the after-market which will free up more money for more loans – get it?

I realize that “toxic” securities now held by institutions may be in the multiple TRILLION dollar range. Many of them insured by companies like AIG and that this would be an economic atom bomb but I don’t see any other way out.

I am also having trouble with the emphasis on “loans” as a way out of our economic dilemma; isn’t that how we got into this one?

Obama may need to get a few more economists to join his team; Geithner just doesn’t seem to get it sometimes and probably could use some advice – what about Sumner?