There is a good bank in there somewhere, get a shovel and look

Ronald Reagan is reputed to have excitedly said after confronting a pile of horse manure, “there’s a pony in there somewhere”!

I believe the same with our banks today. Despite what seems like replicating and morphing mortgage manure carried this far on the back of poor risk decisions at individual banks, short sighted regulatory and political policies, I know there is a good bank of some size, however small, in each individual pile.

Earlier on these pages more than one of us offered up an idea for The New Homestead Act of 2008. Yeah, I know it is too late for that title now, but not too late for some of its ideas.

Just a little back of the horse explanation so to speak, about where did all that TARP money go? Why has it not put all this behind us, why has lending not resumed with a passion and what are they hiding, the jerks….that would be the banks that took our hard earned, stolen, or inherited money. I found mine on the sidewalk.

The banks are full of loans that they do not know how to evaluate so as to write them down once and move ont. Some are using management judgement to ease into the ultimate losses as they really do not know where bottom is any more then you or I do. Well, at least you.

Money is fungible, meaning putting money in your bank account, or making a loan payment to a bank, buying newly issued stock or bonds or forcing them to take TARP money, remember, so wanted it some did not and it was not a choice amongst a select group of big banks, all of these actions is like putting water in a pond. There is more money in the pond, but it is almost foolish to try to track individual molecule of H2O.

Read their financials, it’s all in there, granted it looks more like Greek than the Kings amended English, but trust me, or at least the auditors, it’s in there, all mixed up with the ponies.

Ben Bernanke, while supporting the political and hopefully stimulative “cash to the people” program that did not help much last year, knows something else has to be done to find the pony and segregate it in some way from the manure, which happens every day remember. Manure happens. Part of God’s plan, one of many questionsfo inquiry I have if ever given an appropriate forum.

His choices go something like this, and don’t forget this is for new money not already committed from any and all sources to programs underway.

One, is to buy them, meaning all the bad assets outright and put them on the governments balance sheet leaving presumable a good bank. Accounting always rears it’s ugly head, so if that is done at something everybody says is as close to market as can be determined, since manure happens every day (markets change). So after the government commits all the money to buy the manure, it still will ahve to add more capital to the banks to absorb the losses incurred due to the sale. That is where the old Tarp money and probably the new tarp money will be used, since it is leverage maybe twielve to one on the banks boos. Forinstance, if a bank has a $100 total, it can only lend $90 plus as the rest must remain on their books in order to meet regulatory requirements.

Two, is for the bank to pay a fee to the government to absorb the losses the bank occurs on a group of loans. Sort of like Credit Default Swaps, a name only a politician could have come up with since they are simply insurance policies that can also, or not, be structured as a financial derivateive traded in secondary markets like options on stocks, or futures on government bonds which are rational products, with price discovery and risk maiontained intraday. No organized exchange trading in these “risky schemes,” valuable to a risk oriented and viable capitalism, have failed nor had any disruptions because they were managed well, unlike the back of the envelope CDS market consisting of customs insurance products not labeled insurance (wonder why Rubin left Citibank to pursue other itnerests? Rubin’s finger prints are all over that unregulated mess and CitiGroup’s decision he advocated to take a lot of risk in that area. In poor form he blamed the risk managers for the failures.

A third is to set up a manure bank and a pony bank with the pony bank having adequate capital to operate. The manure bank would be capitalized with the non pony stuff, plus a buffet style preferred stock plus some common stock “investmetn” at value that in 10 years will have produced a profit. This of course will shrinking the pony bank. Both new stocks will each beginning denovo trading on the stock exchange separately. So the current stock symbol “C” for CitiCorp would now trade as C-Pony and C-Shit.

Markets like transparency. Maybe C-Shit will be turned into a biodiesel fuel by innovative financiers and chemists in this new laboratory.

The third one has my unequivocal backing although I would like to solicite and receive better creative commons designs for a apprpropriate gear.