Reply #11: Taxpayers still hate the bank bailout

[ozymandius]

NEW YORK (Fortune) -- The Obama administration is trying to fix the bank bailout process. But they have their work cut out for them.

New Treasury Secretary Tim Geithner put in place new rules this week that restrict lobbying related to the $700 billion Troubled Asset Relief Program, or TARP. Geithner also introduced rules to limit political influence on funding decisions, released the full terms of previous rescue deals, and met with a group of congressional appointees charged with strengthening TARP oversight.

....

Moves such as the lobbying ban "are a good first step," said Luigi Zingales, a professor at the University of Chicago's Booth School of Business. "But it's clear that more has to be done."

....

Under one alternative, he suggested banks could be split in two, to separate the healthy and unhealthy assets. Investors would get stakes in both the good and bad banks, the latter of which would be responsible for running off or liquidating the bad assets.

Zingales noted this would require Congress to pass a law overriding existing debt covenants. But he argued that this plan could work -- even though the losses on the bad banks could be quite large -- because the government would no longer need to inject more taxpayer money into banks. In addition, the healthy bank might be able to boost lending and attract private capital on its own.

http://money.cnn.com/2009/01/29/news/bailout.fairness.fortune/?postversion=2009012903