Clunky Flow

I wrote about my idea of ‘My friend the economist and my dumb question‘ here on 23rd January.

I’m now in very good company.

From Willem Buiter at the Financial Times on January 29, 2009 “The ‘Good Bank’ Solution”

There is an alternative solution to the problem of valuing the toxic assets. 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.

From Nobel economist Joseph Stiglitz on 02 Feb 2009 at Davos. “Let banks fail” reported in the Telegraph.

“the government should allow every distressed bank to go bankrupt and set up a fresh banking system under temporary state control rather than cripple the country by propping up a corrupt edifice”.

From George Soros on 04 Feb in the WSJ “We Can Do Better Than a ‘Bad Bank’ “

… about $1.5 trillion is likely to be required to recapitalise the existing banks properly. This money could be leveraged a lot more effectively if most of it were injected into the new good banks, unencumbered with the toxic waste of the existing banks.

From Paul Romer in the WSJ on 06 Feb “Let’s Start Brand New Banks”

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.

And from Willem Buiter again at the Financial Times on 08 Feb “Good Bank/New Bank vs. Bad Bank: a rare example of a no-brainer” rounding up the ongoing discussion:

I claim no authorship or originality for the ‘good bank’ proposal. The idea is obvious and no doubt was floating around the blogosphere and elsewhere as soon as the magnitude of the insolvency disaster in the banking sector became apparent.

The US, the UK and several other continental European countries are at risk of emulating Ireland, where the government first guaranteed all the liabilities of the banks (other than equity) and only after that began to nationalise the banks. This leaves the Irish government today in the not too enviable position of having to choose between sovereign default and bleeding the tax payer and the beneficiaries of normal public spending to make whole all the creditors of the banks.

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