The more I read about the "bad bank" idea, the less I like it.
Obama, by any rational measurement, is a major improvement over W -- but the same might have been said of any of the Democratic primary candidates, or of Wile E. Coyote, or Richard M. Nixon, or even Oprah. Where Obama falls down, though, is in surrounding himself with Clintonistas who instinctively herd towards what they perceive as the "center." They don't seem to have noticed that "liberal" isn't a dirty word anymore, nor that while the right is as bombastic as ever, fewer are listening. And so, Geithner and Summers and the rest of the Robert Rubin protegés are having their way: nationalization remains verboten, and it looks like the American people as a whole will have to eat the losses racked up by the banking industry -- not just the industry's stockholders and bondholders.
It's true that Obama owes a debt to Wall Street, which provided the funds that let him take the lead in the "money race" early in the primary season. It was that lead which got him serious attention from the media, which in turn enabled him to mount a successful campaign for the small contributions that won him the presidency. Honestly, though, I don't think he owes the bankers over a trillion dollars -- at least not our trillion dollars.
So, instead of wasting taxpayer money on a bad bank -- a kind of financial sin eater that would absorb the toxic assets of possibly zombie banks and transfer them to current and future taxpayers -- why not use the remainder of the TARP funds to create a good bank, government owned and operated, which would provide loans directly to businesses that will create jobs and creditworthy individuals who want to make major purchases? There are plenty of out-of-work bankers available to organize and staff the new bank, and the vast majority of those had nothing at all to do with the derivitives failures that caused the current mess.
Yes, I know. That would be socialism. Shame on me for being both unregenerate and unrepentent. It wouldn't have to be permanent, though -- the good bank would exist just long enough for zombie banks finally to stumble into their graves. After that, the good bank's assets could be sold -- at a profit -- and we all could go back to private banking again.