Treasury investment in major banks

Although The Big Bailout will definitely be a boost for the big banks, it by itself will not raise substantial amounts of capital for the big banks since the values of the "toxic" assets have declined so steeply from their face value. What I think is also needed is for the U.S. Treasury to make direct investments in a number of major banks, preferably in return for an equity stake that could be sold for a profit some number of years down the road. The amount of investment should be in the $1 billion to $20 billion range depending on the size and importance of the bank. Maybe the total amount would be on the order of $100 billion for the top 20 banks in the U.S. Private equity would probabably be willing to invest in the next tier of regional banks if the rules for investment are relaxed sufficiently. This is in addition to Treasury recapitalizing Fannie Mae and Freddie Mac on the order of another $100 billion. At that point, the U.S. banking system should be back on its feet, with credit flowing relatively freely, albeit not at the torrid pace we saw during the housing boom.

Separately, the "credit" arms of the car companies and GE need to be divested and regenerated into a form that the banks are willing to take on, even if some Treasury subsidy is necessary. I believe that having industrial corporations compete with banks for loans was one of the seeds that lead to banks to reach too far beyond their core business model to compensate for a lack of decent returns on traditional lines of business. The day of the 0% car loan definitely should be numbered.

-- Jack Krupansky