OK then, here are some alternatives to the plan.
1. Let everything go bust, continue to have housing come down, bet that there won't be a series of runs on banks and that the FDIC can dispose of bad loans on a case-by-case basis. I don't think that's worked to date. It will only get worse.
2. Get a modified plan that allows banks that have written down the mortgages to sell them. I don't buy the idea that the other banks will be in a weakened position to handle the new "markdowns," because many of the banks have already marked down prices and the examiners have let them slide. Any modified plan of even a small amount would help. But to just let the mortgages sit there is a very bad move.
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3. Bet that we get a big rally and banks can offer equity and get whole again. This is good for Citigroup (STOCK QUOTE: C) and for maybe Wachovia (STOCK QUOTE: WB). I doubt either will do it; they will regard it as too expensive. I don't know who else will do it, but the Zions Bancorp (STOCK QUOTE: ZION) model was a winner. That's what the short-selling ban was partially about. We all hate the short-selling ban, so let's be clear on that.
4. Go the other way, and nationalize the bad banks. This is the Fannie Mae (STOCK QUOTE: FNM) and AIG (STOCK QUOTE: AIG) way. I don't think we want to go this way, taking over all of these institutions. I like the idea of equity being taken in the bad ones, but I don't know if that will sell.
