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A Reaction to Geithner’s Plan: Forget It, and Bring Back the RTC « The Washington Independent

At Housing Wire, they’re not debating the details of Treasury Secretary Timothy Geithner’s toxic assets plan that is expected to beannounced today. They’re just dismissing the whole thing as a monumental waste of time and wondering about this: Why aren’t we just re-creating a model that already works? There’s one easily at hand: the Resolution Trust Corp.

Let me be as blunt as I’ve been in a awhile in this space: we need the RTC. We don’t need to clean up a few bad assets here; we need to clean up likely thousands of banks and financial institutions that made bets tied to mortgages that they never thought they’d lose on. We need to restore faith in our banking system, no different than we need to restore faith in our nation’s mortgage markets.

We have the model. The only question that remains is this: will we use it?

The RTC was created in the wake of the savings and loan scandal of the late 1980s. It sold off the assets it was stuck with from failed S&L’s, and was a success in doing so. Here’s the difference between the RTC and Geithner’s plan (details here), in which the government will subsidize to investors to buy up toxic assets from banks:

This plan… isn’t the RTC — it’s not even close. The RTC pioneered public-private equity partnerships in the liquidiation of real estate, yes. But don’t be fooled by the partnerships that appear likely to be unveiled here; the RTC existed to sell assets of already-siezed financial institutions that didn’t have enough assets to cover their debts — not to see investors put up 3 percent equity as part of a strategy that will see the government buy and hold “assets” to maturity.

I’ve never heard a coherent explanation from the administration on why no one is pushing to use an idea that has already been proven to work. We can probably expect the RTC idea to gain more traction, as criticism of the Geithner plan rolls in.

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