I just heard Sen. Hutchison (R-TX) refer to the last time we tried the ‘bad bank’ model. And she said that was the Resolution Trust Corporation after the S&L Crisis. Well, that’s not a ‘bad bank’ in any way that has any relevance. The RTC took over assets of S&L’s that went under, bankrupt, kaput. It then sold off the assets, recouping a lot of taxpayer value but still requiring a lot of government money.
There’s not a direct parallel. But the RTC is much more like what’s being advocated by those who say let the banks go under and have them temporarily taken over by the government before being sold to private investors. Again, not a perfect analogy since this wouldn’t be a liquidation — at least not entirely — but more a financial reorganization.
But the fundamental point is the same. The government takes over ALL the assets, good and bad. And after the institutions go under.
