1) Take the pain now and nationalize all the big banks by allowing the unsecured creditors and shareholders to take the hits - DOW 6500 -7000 then becomes the worst case scenario. We clean up the banks now and move on. In this scenario we may have a recovery sometime in late 2010
2) Delay the pain and continue to let the toxic assets float by keeping Zombie banks on life support - if the US continues to take this route the DOW could fall by 80% from its highs (as Japan did) to 2,800, and the US will fall into a "near depression". This is the current course that our government is on. If you folks don't mind food lines, riots, 20-30% unemployment and the transformation of the US into a 3rd world country, than I suggest you write you local representative and plead with them it quit dicking around and write the bad debt down now. If not, soon we will all enter the Twilight Zone.
What is interesting to me is that the earnings estimates for 2009 range fro S&P .47, Zacks 1.21, averages estimate on yahoo is .77. Jumping to 2010 its 1.87. S&P estimates 28% revenue growth in 2009. Book value is 10.00. Looking at the estimates and the Fed as the back stop, BAC appears very cheap. Nationalization is not in the cards.
How would you concider BOA a zombi Bank when the bank itself is highly profitable, How about an accounting seperation, that leaves the real estate write off losses in a seperate account with Govt. over sight that can be spred out over years if time itself does not corret the losses. This would allow the bank to continue lending making money, keep the stock up and have a win win. Why do you think this has to be fixed over night.......
Choice #1: Toast all shorts by buying all C and BAC shares at $20 and $30 per share respectively. Private investors will jump in and invest in stock market. Financial market recovers and we are out of recession.
Choice #2: Reinstate uptick rules. Continue to inject capital to banks and in parallel create bad banks to buy toxic assets. Force banks that receive FED money start lending like C. Recession will cover slowly until 2010.