Even if the banks are successful in cleaning up their books; what guarantees are there for them to lend again since the US has no regulations in place requiring the banks to lend?
Why hasn't the US government allow for the consumers who can afford the payments, to recalculate their mortgages with amortization schedules over 50-75 years but on a 10 year note which would be affordable for many people to stay in their homes and provide a floor for the housing market? Allow their credit card debt to be rolled into the same mortgages but with the caveat they have to pay by debit card going forward?
Aren't the banks likely to keep all of the 'decent toxic' assets and therefore what will be left to bid on will be just total crap that even with the incentives provided by the government; will drive away most bidders?
That's the point made by Simon Johnson and James Kwak (from The Baseline Scenario) in today's LAT:
Geithner's plan isn't money in the bank - Los Angeles Times
Second, there is a "lemons" problem, also known as adverse selection. Even with a reasonable degree of disclosure, the selling banks will still know more about their assets than the buyers. The banks will be trying to dump their most toxic assets (their lemons); the buyers, fearing exactly this behavior, will reduce all their bids accordingly. This will make it harder for buyers and sellers to meet.
