Banking Incentives

I am not sure if I read this elsewhere, but I think a big part of the failings of the bailout is the incentives of banking management to keep their jobs.

Here is my logic:

• You are a senior manager of a bank and you are in serious trouble. Lots of assets that have lost most of their value against hard liabilities. Say you have a $30b gap (liabilities > assets).
• You don't think the Feds will keep you alive at $30b (you're not a Citi or BofA, smaller fish). They would decide you are too weak to live, so they would just take you over. And you lose your job.
• So, you calculate "what will keep the bank from going under for a period of time". This also the "how do I keep my job" calculation.
• You get your money (say $7b), but you are stocking that away as your cash you need to keep the bank afloat. You need that cash to subsidize the losses that are going to come in. You do not lend it.
• So, all this money is basically keeping the banks from closing, but not bringing about new lending. Thus the "zombie" bank analogy.

Based on the reviews of Geithner's plan it sounds like a piece of this will include a thorough review of the assets and liabilities of the banks. Hopefully, it will mean killing off the ones that cannot live, getting rid of senior management and blowing out the shareholders. But they need to do it fast.