While President Barack Obama may have just stepped into office on Tuesday, Jan. 20, the pressure is already on for Congress and the new administration to reach an agreement regarding the next incarnation of economic stimulus. Of the three options the Obama administration is thought to be considering for addressing the economic crisis, the first would be to continue the politically unpopular Bush policy of injecting capital into troubled financial institutions.
In an online survey conducted by Big Builder, just 7.1% of respondents thought such a bolstering of banks' balance sheets would prove effective in returning liquidity to the market, thereby prompting economic recovery. Meanwhile, 78.6% felt the move would fail to improve the situation. Noted one respondent, "It just gives banks more time to not deal with underwater land and postpone transactions that establish value and a floor."
The second option believed to be under consideration by the new administration is the creation of a government-financed "bad bank," similar to the Resolution Trust Corp. seen during the S&L crisis of the 1980s, which would take over mortgage-backed securities and other toxic assets. While less than a quarter of respondents--21.4%--felt this measure would fail, 64.3% believed it would enable private sector banks to resume the kind of lending that is needed to revive the economy.
The third option, which would be for the government to seize troubled banks and either operate them or break them up, was seen as a viable strategy by 14.3% of respondents, while 71.4% said it would prove ineffective. "The government has no experience or inclination to differentiate between business opportunities and make lending decisions," explained one respondent. "The private sector is far better equipped and experienced in the development of business issues."
Overall, the creation of a "bad bank" to take over toxic assets was viewed as the most viable solution at 57.1%; however, 28.6% of respondents stated that none of the three solutions was the right course of action. As one respondent put it, "All three of these [proposed solutions] seem to be chasing the problem instead of working to get ahead of the problem."