The Geithner Approach

Calculated Risk has a great post with graphs, illustrating Tim Geithner’s plan to stabilize America’s financial system into a constellation of zombie banks and welfare queens.

The Geithner approach is to keep injecting capital into the banks to cover the losses. This is known as the “Zombie” bank approach.

In essence the balance sheet looks like this with liabilities greater than total assets. To make the zombie balance sheet “balance”, I’ve added “??????” to the assets.

These “??????” assets are either future retained earnings or additional money from the government. Although the bank is balance sheet insolvent, the bank will never be business insolvent because the government will continue to provide money to cover losses.

via Calculated Risk: Bank Balance Sheet: Liquidity and Solvency, Part II.

A “Part I” is also available,