SD – you analysis is somewhat like this analogy: You have a bad tire and driving on the fast lane of a freeway at 70 mph. Would you rather have a puncture and pull over to an exit or shoulder or “get it all over with” and have a blowout?
The “far healthier” “bath now” approach will liquidate many more banks like Countrywide. Even FDIC may have to pay up the depositors. A puncture instead of a blowout will allow the banks to continue business, take losses and limp along. Like Ford & GM rather than U.S.Steel & RCA (remember them?).
Debt bubble will be cured because, being in crisis mode for a long time, the banks will be super risk averse and never make a bad loan. That is healthy in the long run. If they all blowout on the other hand, a new breed of Cowboys will be born again from the ashes and the cycle will continue. It is good to have an army of wounded veterans to preserve the institutional memory.
I am all for personal responsibility. But if a lender gave NINJNA loans, I think REO is written in watermark on all those no cash down/exploding ARM mortgages.
