Get Long Torches & Pitchforks: Bailouts "Absolutely Asinine," Ritholtz Says

With Ben Bernanke testifying about the need for regulatory overhaul while the government is reportedly considering yet another bailout package for Citigroup, one question remains front and center: What to do with ailing banks?

Barry Ritholtz, CEO of Fusion IQ, says the current bailout bonanza is "absolutely asinine" and believes there's no good reason the U.S. government should be rescuing the debt holders and counterparties of firms like AIG and Citigroup.

"Why do you and I as taxpayers have to make good some bet that Goldman or Deutsche Bank [or Pimco] made?," he asks. "When you lend money to an insolvent institution, you're not supposed to be made whole."

Ritholtz, author of The Big Picture Blog and the forthcoming Bailout Nation, believes the answer lies in good old-fashioned FDIC mandated receivership, which is another way of saying (fully) nationalize insolvent banks. (Full disclosure: I am collaborating with Ritholtz on his book and being paid for my efforts.)

While painful at the onset - for debt and shareholders alike - such a process would ultimately result in "a reboot - a fresh start" for companies like Citigroup, AIG and Bank of America, says Ritholtz. "Just get them out from under all of the horrific decisions their inept and incompetent management has made over the past decade."

From Nouriel Roubini to Paul Krugman, Alan Greenspan and a rising number of Republican Senators, momentum appears to be swinging toward that outcome.

Ritholtz predicts Treasury Secretary Tim Geithner will eventually abandon his current strategy of trying to keep zombie banks alive by any means possible.

If not, "I wan to get long torches and pitchforks because eventually the taxpayer is going to figure out how badly they're getting screwed," he says - only half-jokingly.