Another Sound Idea from Barry Ritholtz

In his column in today's Washington Post, Barry Ritholtz, who's not exactly a shy guy, outlines his plans for fixing the banking system.

First, he outlines the banking problems that brought us to where we are today:

●Bank holdings: They remain stuffed with declining assets, primarily in housing and derivative holdings. Another leg down in housing could be nearly fatal.
●Transparency: Balance sheets are unnecessarily opaque. Eliminating fair-value accounting via FASB 157 did not fix balance-sheet problems, but instead allowed banks to hide them.
●Capitalization: This remains too thin. Leverage should be mandated back to the pre-2005 rule change of no more than 12 to 1. Management does not keep adequate capital unless forced to do so (“sufficient” capital reserves cuts into profits).
●Misaligned incentives: Compensation and bonus schemes were not significantly changed after the bailouts, except during loan repayments. Thus, management and traders still have the same upside to roll the dice, but they do not have the downside risks, which remains on shareholders and taxpayers.

Now, you can probably see his solutions:

• Fire all of senior management, including the board.
• Nationalize the bank temporarily so that you can get rid of the crap.
• Recapitalize the bank and spin off the good non-banking subsidiaries