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 Wilbur Ross and his firm WL Ross & Co. built massive steel and textile companies from the purchases of bankrupt businesses. Now, Ross has a plan to "save" the banking industry from the thousands of bank failures he foresees.
While appearing on CNBC's Squawk Box Monday morning, Ross provided a solution for the current credit crisis, and it harkens back to the system used during the last banking crisis. His proposal is called the "good bank, bad bank" approach. Basically, Ross recommends establishing a third-party entity to take bad loans from troubled institutions, such as Fannie Mae and Freddie Mac. According to Ross, by refocusing on the good loans, the uncertainty caused by the delinquent and high risk loans would clear up, allowing bank to get back to lending and therefore spurring on economic growth. If the plan sounds familiar, that's because it basically was the strategy used in the early 1990's to deal with the Savings & Loan Crisis, when a thousand banks failed. - Matthew Wurtzel See the video from CNBC CategoriesComments
From: Matthew Wurtzel,
Steffen, Despite Ross' dire prediction, we're no where near a thousand bank failures. So far, there are only 8 for the year, and certainly there are more on the brink of failure. However, its doubtful we'll witness anything on the scale of the 1990s. By the way, if the topic of bank failures is of interest, I would suggest today's Journal story about the tug of war between the FDIC's and OTS' competing interests entitled "FDIC Presses Bank Regulators To Use Warier Eye" http://online.wsj.com/article/SB121910451437851359.html?mod=googlenews_wsj Thanks,
Posted on:
August 19, 2008 10:11 AM
From: tega,
Found an interesting thought towards a long-term solution to this problem. Go to http://parthardas.googlepages.com/financialmeltdowninamerica. It talks about the solution in US govt.'s targeted spending in national asset creation.
Posted on:
October 12, 2008 12:56 AM
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Hopefully, we won't duplicate the S&L fiasco with the government exacerbating the losses suffered by investors in the S&L industry. The loan portfolio of junk bonds was sold to investors at incredible discounts and most of the bonds were eventually paid off. This resulted in a tremendous loss to the taxpayers by subsidizing this unwarranted selloff high yield bonds. Replicating this with the nonperforming mortgages would simply be another taxpayer bailout costing hundreds of billions of dollars or more.