Everyone and their brother has put in their two cents on the Geithner’s U.S. economy bailout plan. I thought I’d add mine here.

First, no one knows how had things really are. They are all guessing.

Second, I really like Obama but I think he’s making a huge strategic error here (and one large enough that it may outweigh all the good he does). All the banks that don’t have the cash to continue operations should be unwound and the assets sold off. There should be forced bankruptcies for most of the largest banks. 

The executives should be fired and then equity holders should be wiped out. Then pay the creditors in order like any normal bankruptcy.The way to get the “toxic debt” off the books of the bankrupt banks is to transfer the debt to creditors. Let them decide whether or not to sell it at fire-sale prices or wait until it returns to its “real” value.

In some cases where one could justify a Chapter 11 bankruptcy the feds could provide DIP (debtor in possession) financing for the bankruptcies but I don’t see many banks worthy of this treatment. Most anyone who played with mortgages or CDOs is wiped out, plain and simple. They are bankrupt, we just haven’t acknowledged that yet. Having taxpayers foot the bill to subsidize the banks is a big mistake.

Anything less than letting the banks fail is simply pretending that reality is something other than it really is. It may feel better in the short term but it is only going to prolong the pain and make things worse.

- Curtis