If the only question was, “How do we save the banks?” and no other consideration, then the Bad Bank idea is fine. I'm mostly against the Big Bad Bank idea because it rewards the failure of executives who made bad decisions.

I know all this sounds like a pipe dream considering political realities, but to me it sounds like a good combination between having good prudence but lessening moral hazard.

Why do we want to create a “bad bank” with all the bad assets? Who says that will get the remnants of the ailing banks lending again, any more than our giving them so many billions already got them to lend again? Why would they assume any more risk at this time?

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Stockster, I shudder at the idea of smiley-faced fascism (state capitalism, i.e., government ownership, of banks or anything else — it can be said to exceed even Nader's fascistic dream of federal corporate charters or federal officials on boards of directors, etc.) but I will say that given the banks cannot, and should not be required to, make loans to risky borrowers, at least one caller-in to Thom Hartmann (lefty talk radio host) suggested a contemporary Hamiltonian-twisted idea of an actual federal bank, muscling far beyond existing federal roles in housing, into much of what has been mainly or exclusively private, making (no doubt subsidized) low-interest loans to people, loans of all kinds, for homes, yes, but also for autos, say, or just personal loans, jump-starting the economy (and sustaining it, afterward) by the equivalent of something much larger in size and scope than “micro-lending” or “micro-loans” in the developing world, as I thought of it.

But I understand that you would want to see the federal government (and by stretching the metaphor, us all, with Washington as our agent) get something in exchange for all this money and other forms of bailout that are being contemplated.

Meanwhile, what do other nations see (clearly, that is), but more reckless spending in the form the House bill has taken? Hopefully the Senate as well as Obama will see to it that the more ridiculous things are removed from the bill and the rest of it reduced where this is appropriate. What the Democratic House will do in reaction to this, who knows.

But, the thing I have to say is that we should only do that if we do the Swedish model which is to force all banks to do massive writedowns and then see. I don't believe that we should let the banks tell us when they want us to buy bad debt.

The only way I could get on board with this idea is if the government received ownership in the banks that needed help. For instance, if the govt. bought $100 bn in bad debt from Bank A, then the government should get a $100 bn ownership is Bank A. The banks may not like it, but that's the cost for receiving government help out of the hole banks dug. Also, if the banks receive government assistance then bonuses and pay should be curtailed among the top executives.

Not all banks will need government assistance. And that's fine.

The best plan would be one in which the failing banks say “No, we can't live under these terms.” These banks need help and shouldn't be in a strong negotiating position.