FDIC and Treasury at Loggerheads

The headline on top of The Wall Street Journal's Money & Investing section is "Failed Banks Dot Georgia's Vista," but underneath is "Playing Mortgage Market Proves Tricky." Meanwhile the Financial Times headline on page 3 reads: "TARP Payback Creates 'haves' and 'have-nots.'" These are two sides of the same governmental coin.

The hard-to-get loans that the Journal references have to do with solvent banks unwilling to sell loans to investors. Of course they should be: Those loans are going higher in price as housing recovers. They should be bought. No bank that has raised capital is possibly going to sell them -- they are coming back, for heaven's sake.

The opportunity comes from the have-not and failed banks. The FDIC is so focused on the management at places like Citigroup (C - commentary - Trade Now) that it is missing the sensible opportunity to parcel out these banks to the haves and then sell the "bad" loans to the vultures. The Treasury seems determined to keep all banks alive instead of shot-gunning the weak ones.

The fault of the system here seems to be the friction between the FDIC, which is focused on the high-profile battles, and Treasury, which is focused on winning the war against unemployment. A healthy banking system with private investment will return more TARP money, pay down the deficit and give impetus to taking hits on loans that never mature. Meanwhile the securitized loans in the system can be bought by buzzards and we can get through this.

But we must collapse Fifth Third (FITB - commentary - Trade Now), KeyCorp (KEY - commentary - Trade Now), SunTrust (STI - commentary - Trade Now) and Regions Financial (RF - commentary - Trade Now) into other banks if we are going to move through this period. We aren't there yet.

What's with the FDIC? What's with Treasury? Get the public involved, get the shotgun marriages finished and give us a stronger banking system so more lending can flow. President Obama must stop these internecine squabbles. We are not getting to where we should be post-stress test. We could be there in a matter of months if the government addresses this dichotomy.

Random musings: Of all of the thoughts kicking around this site, when you merge the thinking of Dan Dicker on the endless bid in oil as part of portfolio diversification (like last year, but hopefully less leveraged) with the comments by Don Dion in his unbelievably comprehensive ETF piece, you are going to see continued artificial financial boosts in oil even without demand. It's a very smart thesis and begs to be understood by everyone watching this site.

At the time of publication, Cramer had no positions in the stocks mentioned.

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