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Sunday, September 28, 2008

Better Idea Than a Bailout!

I have a good idea that might fix the economy faster than a bailout... and it won't increase our taxes. Step 1: Find a local banks, credit unions, etc that aren't going under because they weren't engaged in sketchy loans. Step 2: Move your money and securities portfolios there.

If everyone in the country did that, then 1) the banks that engaged in bad practices would go out of business faster 2) the banks that were doing business well would stay in business, and 3) nobody would lose money except the owners and trustees of banks and loans that were sketchy in the first place.

The only issue is... how do you find a bank that has underlying stability?

Well, I can tell you a simple rule: don't put your money (especially uninsured assets like securities) in banks with "high numbers" of writedowns:

http://en.wikipedia.org/wiki/List_of_writedowns_due_to_subprime_crisis

Now, a high number really depends on the cash flow of the bank (revenue or market cap are probably easier to look up, and will be a ok numbers).

Basing things on revenues is a bit hard because some companies, like Ambac and MBIA have lost so much money that you can't properly divide by a negative number. I'm butting those 2 on my "definitely will go under without government help" list.

For the rest, Countrywide, Morgan Stanley and Citigroup top the list of banks whose reported writedowns are a large percentage of my adjusted revenue/market cap numbers, followed by Washington Mutual and Wachovia. I would say the only banks in the writedown list above that look clean (writedowns are significantly low compared to overall revenue) are Goldman and JP Morgan Chase. Really, that's it.

I'm guessing Citigroup is putting the heavy political pressure on to get the bailout passed. They have the Washington connectons, and they have the girth to claim "if we go under America goes under". Well, sort of. Chase is just as big, and they don't have a tenth the billions in mortgage losses that you do Citi.

So, do we really need a bailout system? Perhaps some smaller banks who are failing due to "overall sector" failures, and not due to poor judgement and bad loans should be the first ones to get help. Citigroup should be the last on any list. Their poor judgment should result in other banks assuming their assets, not in a federal subsidy that keeps a bunch of bad money managers around to screw things up again.

My guess is though that small banks will be excluded from any help and this bill with be a "fat cats only" measure.

I really hope Obama has the foresight to vote down any bill that doesn't prioritize help for small banks and credit unions. It's kind of like the Iraq war bill that he voted against. It's an "emergency measure" declared by our creepy Republican administration that, when held to the light of scrutiny, has a rotten core.

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