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Ten Banks to Treasury: Take Our Money, Please


Most lenders eagerly accept loan repayments. But this is Washington.

The Mighty Geithner, Keeper of the Troubled Asset Relief Program, says that 10 banks may repay a combined $68 billion in taxpayer-backed loans.

Anywhere outside Washington, a lender would eagerly accept repayment of a loan. But this is politics, and repayment requires -- if you'll pardon the expression -- some thought on behalf of US Treasury Secretary Timothy Geithner.

It may be time to let weak banks fail rather than keep them on life support at public expense -- and worse, have the banking system run by the 535 ministers of finance, also known as Congress.

This wouldn't be the end of the world. JPMorgan Chase (JPM) successfully took over Washington Mutual, and Wells Fargo (WFC) absorbed Wachovia.

The obvious problem is Citigroup (C) because of its size, international reach, and long history of trouble. Some have estimated losses at about $63 billion, and it's had so-so success is raising private money.

The Wall Street Journal notes, "More broadly, Citi has proven itself unmanageable by having already failed 3 times since the 1980s, requiring government bailouts in one form or another during the sovereign debt crisis in the '80s, the 1990s real-estate bust and again, twice, during the panic of 2008."

Rather than shovel more money into Citi's maw, it may be time to sell off the bank's assets or force a stronger bank to take over what's looking like an increasingly cadaverous enterprise.

Such a takeover or sale would emphatically state that no one is "too big to fail" in the current environment.

Imagine: No more zombie banks and no more taxpayer money down the rabbit hole. Better yet, investors wouldn't expect de facto nationalization of bad management along the lines of Fannie Mae (FNM).

Do that, and the banking sector might begin to be market-driven again.
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