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March 9th, 2009

Certain Republicans Say Let Them Fail



Frustrated over how “financial authorities” have handled troubled banks, two key Republican senators spoke out this weekend:

“Close them down, get them out of business. If they’re dead, they ought to be buried,” [Richard] Shelby told ABC’s “This Week” program. “We bury the small banks. We’ve got to bury some big ones and send a strong message to the market.”

“I don’t think they made the hard decision and that is to let these banks fail,” [John] McCain told “Fox News Sunday.”

The latest initiatives by lawmakers to ensure the survival of certain banks include federal bank regulators beginning their financial assessment of large financial institutions (stress tests) to determine if the banks will need additional capital for “possible future losses…over a two-year period,” as well as the U.S. increasing its stake in Citigroup — now holding as much as 36% of their common shares.

With the White House seemingly dedicated to the process of buying, Senator McCain suggests Washington should start selling:

Asked what should be done, McCain said: “You’d sell off their assets and…unfortunately, the shareholders and others will take a beating.”

“It is practical to talk about buying some of those assets away from those banks and holding them in an institution that would have both public and private money,” [President of the U.S. Chamber of Commerce Tom] Donohue said on ABC’s “This Week.”

According to Democratic Senator Charles Schumer, once the Treasury concludes their stress tests, the U.S. won’t continue pumping cash into an institution that “never solves itself.”

Is increased government investment the right way to handle troubled banks, or are Senators Shelby and McCain on to something?

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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