The deepening recession is at least partly a product of a prolonged crisis in credit markets. Major banks have cut back on lending, unable or unwilling to part with their deposits. Even banks that have received billions of dollars in fresh capital from Washington have been slow to lend. That’s because their balance sheets, like those across the financial industry, are tainted by investments in complex securities that almost no one wants to buy, most of them tied to bundles of mortgages with rising default rates. Illiquid and losing value, these assets make it hard to judge a bank’s health. That uncertainty, in turn, makes it difficult for banks to raise money for new loans and investments.

The Bush administration sought to attack this problem in the fall with a new, $700-billion Troubled Asset Relief Program to buy the banks’ dicey holdings. It never followed through on that idea, but now the Obama administration is considering a similar approach that could be even more expensive. One plan being floated would have the government create a “bad bank” that would acquire troubled assets from commercial banks, insurance companies and segments of the credit market. The strategy is aptly named, because it’s a bad idea.

Like the original TARP, the bad-bank idea has some merit. Rather than unloading assets (which might include securitized car loans and credit card debt in addition to mortgage-related investments) at fire-sale prices, this bank would wait for markets to recover, then sell them gradually. The theory is that many of the assets have real value, which would become easier to divine over time as foreclosures ebb and the economy rebounds. Meanwhile, scraping the sludge off lenders’ books would eliminate much of the mystery about their condition, enabling credit markets to return to normal and hastening the end of the recession.

Basically, what this is doing is helping banks to stabilize and horde their capital….I still have not found a way this will help anyone on Main Street..,,,Dammit!  You guys need to think demand not liquidity.  How many times has this got to be impressed on you before  real stimulus is tried?

As always Washington is playing a dangerous game with people’s lives and if they are not careful the Repubs will return to power in 2010…is that what you guys really want?