Financial stocks are ripping upwards in the aftermarket on rumors that the government may be getting closer to establishing a Bad Bank that would accept troubled loans, similar to the Resolution Trust Company that proved successful during the early eighties Savings and Loan crisis.
In the Book of Leviticus, God tells Moses to impose quarantines on anyone with an infectious disease by sending them outside the boundaries of the camp for a period of time, until they are better. The idea is that by physically separating the sick from the healthy for a time, you prevent a greater breakout within the population at large.
While I very much doubt that Congress has modeled a Bad Bank program after the book of Leviticus, the idea rhymes and could in a sense be divinely inspired. By having bad loans quarantined in Bad Bank Land for a time, the risk of bad loans infecting the entire credit system may be reduced. Banks might loan to the healty once again while the loans in Bad Bank Land get greater attention, longer workout periods and hopefully an eventual return for enterprising investors.
I like the idea. How about you?
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