Do you remember the good cop, bad cop scenarios played out in countless Hollywood dramas?

You know, the first cop would come within an inch of going postal on a suspect only to be thrown out of the room by the more compassionate partner who would offer the suspect a Marlboro and then build trust in the alleged criminal hoping he or she would sing like a canary or Ella Fitzgerald or whatever cheesy metaphor works best for you.

I can not help but feel that we are all that poor sap who is getting slapped around by the first ‘bad’ cop, when I think about the ‘bad’ bank scenario being bandied about as part of the second go around on the TARP funds, not to mention the new stimulus package. Apparently, the idea is to create a clone of the Resolution Trust Corp. (RTC) styled program if you will. The government would use this instrument to purchase toxic assets from banks, thereby cleaning up their balance sheets and then hold onto them (in the RTC or what ever clever new acronym they come up with) until the assets toxicity where’s off and they can be sold at a profit.

For those of you who might be a little punch drunk from the fiasco that was the initial TARP money handed out at the drive through window recently installed on the Treasury building, please allow me to clarify (and do not miss this point). We were sold the original $700 Billion TARP amount under the pretense that it would be used to buy (everybody now) toxic assets.

The pretense turned out to be false.

Hammerin’ Hank Paulson (with the able assistance of Benny and the Feds and 2008’s do-nothing Congress) instead took equity positions in those very same banks (toxic assets and all), as well as those Auto makers in Detroit clever enough to learn how to properly beg, for the first $370 billion or so. Now, the new administration is talking about an 885 billion to 1 Trillion dollar stimulus package, some of which I assume will go to fund the bad bank idea.

Here’s my problem in trying to figure out this neo-fuzzy math.

How much does the bad bank pay for the toxic assets that were supposed to have been purchased 6 months ago?

Folks, I have the advantage of being able to remember the REAL RTC in 1989. It did what it was designed to do, buying toxic assets from the recently collapsed Savings and Loans, and investors could buy pretty decent long term asset plays for a dime on the dollar. Here’s where the good bank-bad bank scenario comes into play.

Who is going play the heavy?

I mean can’t you see whoever the new Bill Seidman (Chairman of the aforementioned RTC) saddling up to poor Bank Executive, shining a spotlight in his or her eye and saying, “listen, these assets stink; they aren’t worth much more than a nickel (knowing he’s got his suspect by the shorts). Then the good guy comes in, and after ushering out the ‘bad’ cop, offers the Exec a marlboro and says something like, “okay, I know you are in a pickle here, and your government wants to help (by the way, whenever you here, I’m from the government and I’m here to help, run) so, out of the largesse of the American taxpayer’s heart, I’m prepared to offer you 15 cents on the dollar.”

If I’m the CEO of the bank and I know those toxic assets are worth more than that; maybe even considerably more; all I have to do is wait (as long as I have the capital to afford to wait), what do I do? I would be tempted to wait it out. The government has already demonstrated their willingness to bail these guys out and not once or twice but as much as needed (can you say AIG?).

Whether it is a good idea or not begs the question. Clearly, something needs to be done to get the banks off the dime; no pun intended. In order to get the country moving again in a positive direction, a healthy banking sector is mandatory. The real question is whether or not we are able to accomplish this with the next stimulus package.

For the record, I do not think we can.

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