The economy and real estate market does not recover in any meaningful, lasting, way until the banking and financial system gets fixed. That is a given.
Less certain is whether the latest plan for dealing with bad assets will be the thing that does it.
One potential problem is that The Plan, now dubbed PPIP (for public private investment partnership), to rid the
toxic legacy assets from the banks apparently allows banks to bid on one anothers assets.
If banks agree to overpay each other for their bad assets, the taxpayers may get stuck with a big tab, nothing really gets fixed, bad stuff results, etc. etc etc.
The Death Star strategy (yes, they called it that) was where Enron would take a fee for relieving a congested market of its excess supply by moving it elsewhere. Just like our legacy assets! There are too many of them, it is clogging up trade, let’s get them to someone else who wants them. However Enron would just move the energy in a circle, collecting a fee for not doing what it was supposed to. As their memo famously said, they are paid “for moving energy to relieve congestion, without actually moving any energy or relieving any congestion.” And, it appears, that the large banks are gearing up to do just that; with the Geitner Death Star that they’ll just be collecting a large fee to run them in a circle, without actually moving any of them off their collective books. For old time’s sake, I hope they route their loan bids through Oregon and then Utah before putting them back right where they started.
Enron on steroids anyone? There’s even a (current White House Economic Advisor) Larry Sumners Ken Lay angle.