Why Not Liquidate BAC and C

[dubes]

I know liquidation will never happen as our government seems intent on doing as little as possible to upset the old order, but might the financial system heal more quickly if these two zombie banks were liquidated?

My thinking was that if the banks were liquidated, that the former depositors would have to put their money somewhere else. Hundreds of billions of dollars would immediately be given to the remaining strong and well managed banks, helping strengthen the remaining banks further.

The key would be to liquidate in orderly way so as not to panic depositors at other institutions. Perhaps this is an impossible task.

 

[MrDODGE]

Remember Lehman?

Think Lehman times a 1,000. That is why...

 

[GodsGift]

buy everything at 1.55, sell it up 25 cents.

 

[Traden4Alpha]

Quote from dubes:

The key would be to liquidate in orderly way so as not to panic depositors at other institutions. Perhaps this is an impossible task.

Liquidation is tricky because:
1. The impact of liquidation on other banks' asset values. How does the liquidation avoid a messy devaluation of loan portfolios sitting on other banks' balance sheets?
2. The impact of liquidation on bonds held as assets by other financial services firms (e.g. other banks, insurance companies, and pension plans). How do you keep the losses of the bank confined to that bank?

Liquidation is like toppling one of the dominos.

 

[good one]

C and BAC are going to be taken over by the government and shelved basically until their assets can be slowly liquidated back into the market at decent prices that does to hurt the company buying the assets..
If that is a good or bad idea at this stage in the game matters not at all.

 

[yonisin]

This is the thanks BAC shareholders get for the government requiring BAC to by Merrill.
Now idiots like Christopher Dodd want to wipe out the share holders.
Welcome to Obama land!!

 

[Landis82]

Quote from yonisin:

This is the thanks BAC shareholders get for the government requiring BAC to by Merrill.
Now idiots like Christopher Dodd want to wipe out the share holders.
Welcome to Obama land!!

6 posts in 2 years??? (since Feb.2007)
What are your other screen-names dude?

 

[Landis82]

Quote from MrDODGE:

Remember Lehman?

Think Lehman times a 1,000. That is why...

Yup.
The OP has obviously never heard of counter-party risk.

 

[Ticketwatcher]

The problem is not what to do with BAC or C.

That is a sexy news story which is of more interest to the media than it is to anyone else.

It is front page financial news because the clueless crew in the media have been left to frame the story on a account of what amounts to a vaccuum of leadership in Washington.

Bush appointed three Treasury Secretaries, and each one a downgrade from his predecessor.

Who would have thunk, that Barry had more of a feel for recruiting incompetence than that dolt Bush?

Just because the common shareholders of BAC and C have been wiped out does not mean something needs to be done with them.

The Gubmint has to decide what to do with all the so-called assets that most banks are holding, not just C and BAC but the ones which are in relatively better shape than those two.

If the Gubmint is as clueless to get a handle on the situation as it seems, then mark to market accounting would be a start.

It would probably do nothing for BAC or C but it would give the other banks a place to start to fix their own problems.

The Gubmint needs a plan to address the problems with securitized mortgage products.

If and when they do that, the need to come to resolution with the dead banks walking like C and BAC can be addressed.

The Barry Administration is so far out of the loop, that the meandering thoughts of Chris Dodd can drive the market, and the White House press office has to do damage control on a story which should be driven by leadership in the Treasury Department.

My guess is Geitner is in a bunker trying to fill in the details of his banking plan on a Etch-a-Sketch.

 

[Landis82]

Quote from Ticketwatcher:

The problem is not what to do with BAC or C.

The Gubmint has to decide what to do with all the so-called assets that most banks are holding, not just C and BAC but the ones which are in relatively better shape than those two.

My guess is Geitner is in a bunker trying to fill in the details of his banking plan on a Etch-a-Sketch.

I think that you severely underestimate how complicated it is to price these assets, and this is why Paulson decided to "punt" when it came to the "reverse-auction" that he originally proposed.

I'm sure that Geithner understands this dilemma as well as anyone and is desperately trying to address it.

But like a 2-year old wanting his chocolate candy from his Mommy, the market WANTS IT NOW.