Garfield's proposed solution is for the borrowers to track down the real lenders -- the investors. He says:
"[I]f you meet your Lender (investor), you can restructure the loan yourselves and then jointly go after the pretender lenders for all the money they received and didn't disclose as 'agent.'"
Karl Denninger concurs. He writes:
"Those who bought MBS from institutions that improperly securitized this paper can and should sue the securitizers to well beyond the orbit of Mars. . . . [I]f this bankrupts one or more large banking institutions, so be it. We now have 'resolution authority', let's see it used."
The resolution authority Denninger is referring to is in the new Banking Reform Bill, which gives federal regulators the power and responsibility to break up big banks when they pose a "grave risk" to the financial system which is what we have here. CNBC's Larry Kudlow calls it "the housing equivalent of the credit financial meltdown," something he says could "go on forever."
In an academic paper titled "It Isn't Working: Time for More Radical Policies," Prof. Randall Wray and Eric Tygmoine suggest calling a bank holiday. They write:
"We believe that most major banks are insolvent and cannot (and should not) be saved. We suggest that the best approach is something like a banking holiday for the largest banks and shadow banks in which institutions are closed for a relatively brief period. Supervisors move in to assess problems. It is essential that all big banks be examined during the 'holiday' to uncover claims on one another. It is highly likely that supervisors will find that several trillions of dollars of bad assets will turn out to be claims big financial institutions have on one another (that is exactly what was found when AIG was examined--which is why the government bail-out of AIG led to side payments to the big banks and shadow banks). There probably are not 'seven degrees of separation'--by taking over and resolving the biggest 19 banks and netting claims, the collateral damage in the form of losses for other banks and shadow banks will be relatively small."
What we need to avoid at all costs is "TARP II" another bank bailout by the taxpayers. No bank is too big to fail. The giant banks can be broken up and replaced with a network of publicly-owned banks and community banks, which could do a substantially better job of serving consumers and businesses than Wall Street is doing now.
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