A Sensible Way to Save the Banks

The Brits may be on to something again. The Brits started the stabilization of the world's financial system by buying stakes in banks, something that had to happen as a consequence of the Paulson/Geithner decision not to buy Lehman Brothers the way they bought the far more troubled AIG (AIG - commentary - Cramer's Take).

Had someone other than Henry Paulson been in charge of the investments in the U.S., someone who had been less ham-handed and more able to explain why he was not ripping off the American people and snowing those who voted for TARP, we would not have the backlash that turned the American people against this program. As Steven Pearlstein pointed out in the Washington Post this morning, in a piece headlined "Unfairly Rewarding Greedy Bankers and Why It Works," we needed to do exactly what we did, which is what the Brits showed us to do, because most of the banks, post-Lehman would simply have collapsed.

Ever since the plan was enacted, we haven't lost a bank, and that matters, and those betting against Bank of America (BAC - commentary - Cramer's Take) should be careful, because Tim Geithner -- who will most certainly be approved because he is worshipped -- will save it at all costs after the incredibly horrible decision he helped make to trash Lehman.

Now the Brits are warming to something that worked with Mellon Bank in the 1980s when it was about to fail: the "good bank/bad bank" philosophy.

The Brits know the banks are still teetering and not lending because they need every penny they can get in reserves against the losses that continue to pile up. Mellon had the same situation, and it split into a bank that had current loans and the current business and a bank that had bad loans that were sour or souring, and it raised money for the bad bank from speculators and investors who wanted to bet on an eventual turn. The deal worked for everyone.

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