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akuma587 on 19 April 2009
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Viper1 said:

The FDIC is who took over IndyMac when it failed.

Besides, the government wouldn't need to buy out every mortgage from a failed bank because they would be delegated during bankruptcy to another healthy bank at real or below market value. In other words the market would have saved itself.

Those bankrupt banks would have then had the ability to pull out of bankruptcy now that those illiquid mortgages are off their books and returned to good operating standing.


PS: "and some banks are already starting to pay it back..." <- That's because the Federal Reserve secretly dumped out several billion dollars. I'll let you take a wild guess where a lot of it went.

Who is going to buy a bank when the banking sector itself has imploded?  Even with the government having stepped in, there are still major liquidity problems.

You are looking at the effect all of these bankruptcies would have in isolation and not the affect they would have as an aggregate.  Bankruptcy is great when you have one company who is unhealthy and needs to go under.  Bankruptcy doesn't work so well when you have an entire sector of the economy that has buckled under.

If all these banks would have failed, no investor would touch any of these banks with a ten foot pole for years to come.

I think the Federal Reserve had a good strategy that worked.  The banking sector has already had a major rally on the stock market when many people were worried that it would see systemic failure.  You can't really argue with results like that.  And everything that they borrowed has to be paid back regardless of what they used the money on.

 



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