FDIC chairman Sheila Bair calls for an "aggregator bank,"

[Lee Common]

which will buy bad loans from banks.

"The idea here is that the aggregator bank would buy the assets at fair value. Some are concerned that you'd have to mark the assets down to purchase them, but I think it could help provide some rational pricing, actually, for the market in some of these assets, because we don't have really any rational pricing right now for some of these asset categories."

"The idea would be to set up a facility, it could be structured as a bank, to capitalize it with some portion of the TARP funds. Financial institutions that wanted to sell assets into the bank could also perhaps take part of their payment as an equity interest in the aggregator bank to provide an additional cushion. If you sold $1 of assets into the bank, you would get 80 cents in cash and you would get 20 cents in an equity interest in the bank. So that would be an additional cushion against loss.

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tried registering the domain www.aggregatorbank.com last night, but no luck as somebody has already done this. The price? $100,000.

"But if the 'bad bank' idea could work, why not create a super baaaddd bank? We could use it to get rid of all our mistakes. Writers could unload their bad novels. Businessmen could sweep their errors under its broad carpet. What the heck, let people get out of bad marriages without penalty; the super baaaddd bank could pay the alimony and divorce costs.
"The hitch with the bad bank idea is so obvious even a banker could spot it. If the cost of mistakes is reduced, people might make more of them. Like the rest of us, bankers are neither good nor bad, but subject to influence. Unlike metallurgy or particle physics, banking does not have a rising learning curve. It's not science. Instead, it's more like love and gambling ... with a circular learning pattern. They learn ... and then they forget. They get carried away in the boom upswing; then they get whacked when it turns down.
"So let them have a good beating. It will give them of a lesson that will last a lifetime ... and give the next generation a solid banking sector."

Your can't believe how we throw the word trillion around so easily analyst,

John Mauldin
[email protected]