Whitney elaborates on her negative view of the “bad bank” idea. She says the bank woes could persist for as long as three years. Ouch.
Unfortunately, I don’t think her idea to sell good assets is enough. Many of these banks (think Citi with SmithBarney) will not be able to sell their good assets in this environment at a high enough premium to offset the mounting losses. Many of these banks are insolvent. They are insolvent today. Waiting for the market to turn or the assets to recover their value is not an option. They must be marked to market. The longer we tip toe around the issue the more Japanese we become….