Realty DOOM

It’s a sobering reality. 2008 saw quite a few large financial institutions close their doors. Thankfully things settled down a bit and banks received some much-needed aid from the government. We were all hoping that bank closures were over — but it appears that 2009 just may see a repeat.

Just a slice of the article: “In a sobering appraisal of the nation’s banking system, President Barack Obama signaled Monday that he will need more money to bail out the battered financial industry. Even so, he said, ’some banks won’t make it.’”

Article provided by Washington Post

In a sobering appraisal of the nation’s banking system, President Barack Obama signaled Monday that he will need more money to bail out the battered financial industry. Even so, he said, “some banks won’t make it.”

Neither Obama nor other administration officials said how much a renewed rescue plan might cost. It is possible that additional help could come from the Federal Reserve, not from Congress.

Still, Obama’s acknowledgment reinforced what many economists and bank industry officials have speculated for weeks.

“We can expect that we’re going to have to do more to shore up the financial system,” Obama said.

Treasury Secretary Timothy Geithner plans to announce a new framework for rescuing the financial sector in a speech next week. The plans will focus on how to use the remaining $350 billion in a $700 billion Troubled Asset Relief program that Congress approved in the fall. It will include new programs aimed at helping homeowners stave off foreclosure, and efforts to stabilize the banking sector.

Top Treasury officials met over the weekend with representatives of the financial industry and other policy makers to discuss a number of possible rescue plans. One is a government-run “bad bank” that take on the bad debts and investments of financial institutions.

In addition, the Treasury could seek help from the Federal Reserve and the Federal Deposit Insurance Corp. to provide banks with guarantees against losses on assets backed by residential and commercial real estate loans, as the government did with Citigroup Inc. in November. And it may also continue the current practice of infusing capital into banks in hopes of easing credit.

The president declined to answer specifically when asked in an NBC interview whether he planned to set up a so-called “bad bank.” He suggested, however, that something like that was under consideration, and that taxpayers would become owners of stock in those banks and investment houses.

“We’re going to have to wring out some of these bad assets,” he said.

Obama said some of the nation’s banks would have to write down bad debts, while other banks may fail.

“It is likely that the banks have not fully acknowledged all the losses that they’re going to experience. They’re going to have to write down those losses. And some banks won’t make it,” he said.

The “bad bank” idea is especially complicated because of the difficulties in determining how much the new bank would pay for distressed assets. Paying a high price could leave taxpayers exposed to billions of dollars in losses; paying too little might not give banks enough money to loosen credit.

One lobbyist familiar with the discussions said the administration is also trying to decide whether to ask Congress to change an accounting rule that affects how assets are priced. Suspending the rule would prevent distressed assets from further markdowns.

The Obama administration has also promised to spend between $50 billion and $100 billion to reduce foreclosures. That, too, is tricky and requires policies that won’t reward irresponsible borrowers or simply put off foreclosure temporarily.

Administration officials had said last week they planned to release their financial sector roadmap this week, but on Monday made it clear nothing would be rolled out until next week.

The administration’s work on the financial bailout is operating on parallel tracks _ one devoted to how the money will be spent and the other on what conditions to place on recipients of the funds and how to better track the money.

Treasury is expected to announce new rules that limit executive pay for companies that receive “exceptional assistance” under the bailout program.

Obama reacted strongly last week to reports that banks gave than $18 billion of bonuses at a time when they were relying on taxpayer money for their survival.

The new rules would not apply to banks receiving direct capital injections. Those banks generally are considered to be healthy, and the bailout money is intended to support their lending activity.

In the Senate, Republican leader  Mitch McConnell, R-Ky., urged the administration to proceed with caution.

“I think we’re all appalled by these _ some of these executive salary arrangements and bonus arrangements and perks and all the rest,” he said. “On the other hand, I really don’t want the government to take over these businesses and start telling them everything about what they can do. Then you truly have nationalized the business.”