This sounds familiar:
Financial markets remain frozen partly because a “large quantity of troubled, hard-to-value assets” is still on institutions’ balance sheets, Bernanke said.
There are several ways to solve this problem, he said, all involving public funds.
The government could simply buy the troubled assets, or it could give asset guarantees and agree to absorb part of the prospective losses, he said.
“Yet another approach would be to set up and capitalize so-called ‘bad banks,’ which would purchase assets from financial institutions in exchange for cash and equity in the bad bank,” Bernanke said.
Treasury Secretary Henry Paulson initially requested the $700 billion contained in the government’s Troubled Asset Relief Program to purchase toxic assets, but he changed course after he sensed that banks were in dire need of capital. Setting up the cumbersome plan to reverse-auction assets would take too long, he said.
You know, September is not so long ago that we can’t remember the last time you sold us this story. Congress dutifully passed a $700 billion bailout (plus earmarks) and the money was spent buying stock in banks and making bad loans to automakers. Now we’re supposed to buy the same story again?