President Obama Faced With Major Bank Rescue Decisions from Day One

Obama Urged to Move Swiftly to Rescue Banks, New York Times
Obama Team Considers New "Bad Bank" , Financial Times

As the world's attention turns to the pomp and ceremony of the Inauguration of the new President of the United States, the financial community is increasing the fervency of its calls for quick and significant action to rescue the increasingly vulnerable banking community. While the need for some action to save troubled banks, like Citigroup and Bank of America, is widely acknowledged, there are a number of different proposals for what specific steps should be taken.

In a recent speech, Federal Reserve Chairman Ben Bernanke outlined three options for a bank rescue plan : 1) an extension of the TARP philosophy, by which the government would purchase troubled assets from the banks; 2) government provision of guarantees of bank assets and agree to absorb certain losses related to troubled assets; 3) the formation of a "bad bank" that would use stock or cash to purchase declining assets. Great Britain recently chose to employ the third "bad bank" strategy in its efforts to limit the expansion of the crisis in the banking industry.

Whichever strategy or combination of strategies they decide to pursue, President Obama and his administration will have a number of factors to consider when making their decision, including the possible--if not probable--disagreements between major players like Treasury Secretary designate Timothy Geithner and Chairman Bernanke and the likely imposition by Congress of conditions and limitations on the use of the remaining bailout money.

Discussion Questions:
1) Should the government offer further direct, financial assistance to banks?
2) If yes, what is the best way for the government to approach a further rescue of struggling banks?
3) Should a certain portion of federal rescue money be dedicated to foreclosure relief?