By PAUL ROMER
Everyone agrees that the United States urgently needs a few good banks. Turning bad banks into good banks is a difficult and risky way to get them. It’s simpler and safer to start entirely new banks.

In this context, “good” means a bank with assets and liabilities that are easy to value using market prices. At a good bank, officers, regulators and investors can be confident about the value of the bank’s capital…

Continue:
http://online.wsj.com/article/SB123388681675555343.html

Thanks to Triona Carey for pointing this out to me via Dave Winer and twitter

PEOPLE For Mathematically Perfected Economy™ (PFMPE™) : mathematically perfected economy™ (MPE™) (interest-free-monetary-stystem, not debt free) is the singular integral solution to 1) inflation & deflation, 2) systemic manipulation of the cost or value of money or property, & 3) inherent, irreversible multiplication of debt in proportion to a vital circulation, engendering inevitable systemic failure at a finite system lifespan defined by an inevitable, terminal sum of insoluble debt. Mathematically Perfected Economy™ is every prospective debtor’s right to issue their promise to pay, free of extrinsic manipulation, adulteration, or exploitation of that promise, or the natural opportunity to make good on it.

For example: While 12,000 homes a day continue to go into foreclosure, mathematically perfected economy™ would re-finance a $100,000 home with a hundred-year lifespan at the overall rate of $1,000 per year or $83.33 per month. Without costing us anything, we would immediately become as much as 12 times as liquid on present revenue. Transitioning to MPE™ would apply all payments already made against existent debt toward principal. Many of us would be debt free. There would be no housing crisis, no credit crisis. Unlimited funding would immediately be available to sustain all the industry we are capable of.

There is no other solution. Regulation can only temper an inherently terminal process.

That said there are always green shoots of growth to come after the losses. We should be prepared to support a quick recovery. Such a recovery would get a welcome boost if there is a banking systems made up of fresh new banks (free of hidden toxic debts) ready to lend to the creditworthy.

http://blogs.ft.com/maverecon/2009/01/the-good-bank-solution/

“It would not involve nationalising the existing banks. Instead the state would create one or more new ’good’ banks - all state-owned and state-funded to begin with. ”

“As regards the the legacy bad banks, the easiest and cleanest way to proceed is to stop them from doing any new business on the asset side of their balance sheets: no new lending and no new investment. They would also not be permitted to take new deposits. A simple way to ensure this is to take away their banking licenses. “

I had a look at Wikipedia for more info.

“Kiwibank has won the first three Sunday Star Times/Cannex banking awards, in 2006, 2007, and 2008 for offering the best value across their range of products.”

“Kiwibank’s success is reflected primarily in its signup rate for new customers of over 300 new organisations and individuals per day (about 2100 per week).”

We need a banking system. But we don’t need banks who don’t know where they stand. We don’t need banks who have no idea how toxic their toxic loan books are. They just cripple the banking system.

Kiwibank shows just how easy it is to establish new banks and give us the banking system essential to our economy.

We don’t need to throw good money at bad banks. We can start afresh. It makes sense.

It’s not a crazy idea — in fact, it’s exactly what we’ve got here in New Zealand, in the form of Kiwibank. Internet only, uses the PostShops for personal transactions, and has mobile lending officers and business bankers who will come to you. Owned by the government/taxpayers, and offers generally better rates than private banks.

I remember a conversation with two representatives of a large trans-Tasman bank, at which they basically whined to me about how unfair it is for them to have to compete against Kiwibank. Poor diddums!

Existing banks are carrying such unquantifiable risks in terms of toxic loan books or other skeletons in their cupboards that they themselves are afraid to lend.

Newly established banks (internet-only or otherwise) would not have these problems. The advantage of internet-only is that it provides a quick and cheap way of setting up new banks. Thus providing a solid banking system.