Bad Bank, Good Bank

There has been much talk recently on having the government establish a “Bad Bank” that would acquire toxic assets; thereby allowing Banks to continue to operate under the “business as usual” format.

Maybe someone from the Obama administration should call the former executives of Mellon Bank, who had established Grant Street National Bank, in liquidation, over two decade ago. Why not ask someone who ran a successful Bad Bank how the process was structured, operated and achieved success. Why waste so much time, energy, and MONEY to reinvent the wheel.

I just got done reading one article explaining how successful the Resolution Trust Corporation (“RTC”) was. Yet, a few days ago, another article stated that taxpayers lost 31 cents on every dollar handled by the RTC. I find this hard to believe as every loan I had negotiated with the RTC on behalf of clients had been acquired for 30 to 40 cents on the dollar; meaning the government lost 60 to 70 cents on these loans. Of course, there was no source for the statistic in the article.

Whether or not a Bad Bank system is established, how will Banks get back to basics – i.e., take in deposits and loan money out using prudent underwriting standards. Greed drove Banks to focus on developing bizarre products ( IOs, POs, no doc loans, the A and B tranche, yadda, yadda, yadda..) and the secondary markets allowed for so much liquidity that Banks kept originating and getting fees. Now the day of reckoning has come.

I look forward to working with clients to help them work through their banking issues.


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