There is – at this point – a small but not unreasonable chance that Bank of America is headed for insolvency and illiquidity. As always solvency isn’t that big of a deal if no one is looking. However, it does seem that people are looking. And, importantly illiquidity is not materially distinguishable from death.
So what is to be done?
The Federal Reserve and the Treasury should coordinate a bailout of Bank of America, of course.
Will it happen? I can’t say that I am sure.
Apropos of my previous post, there is a very small but again not zero chance that we are be about to see democracy wreak havoc on the lives of billions of people.
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Tuesday ~ August 23rd, 2011 at 12:25 pm
foosion
>>The Federal Reserve and the Treasury should coordinate a bailout of Bank of America, of course.>>
I can’t tell if this is meant to be satire or not.
They should reorganize BAC, replacing management that got them into this mess, wiping out the equity, making sure the bondholders feel a good amount of pain, but not so much as to bring down the economy (is the metaphor dominoes or house of cards?), and protecting depositors.
Thursday ~ August 25th, 2011 at 3:39 pm
Fred Geisler
I’d prefer to see something along the lines of an FDIC takeover of a small bank. Spinning the good assets off to others would probably require breaking the bank into multiple smaller pieces; I’m perfectly fine with that, too.
However, if I properly understand banking law in the US, the FDIC cannot take over a large bank, the way it can a small bank. Which leaves us a choice between bailout and Lehman-style collapse. A bailout would be less popular, but probably less disruptive than the collapse.