Beware Simple 'Fixes' to a Complicated Financial Mess
By Steven Pearlstein
WashPost
Friday, January 23, 2009
One group is convinced that mortgage foreclosures are at the root of the crisis. Solve that, and the rest will take care of itself.
Another faction is just as certain that toxic assets on banks' balance sheets are clogging the financial arteries, resulting in a credit crunch that is bringing down the economy. Their solution: have the government set up a "bad bank" to buy up all the toxic assets.
Still another has concluded that it's all hopeless and the only solution is for the government to nationalize the banking system, wipe out shareholders, fire all the executives, sell off all the bad assets at fire-sale prices and start again.
With all this conflicting advice, it's no wonder nobody can figure out what to do.
Most of the silver-bullet solutions are based on an oversimplified analysis or colored by the experiences, ideologies and self-interest of those who propose them. Regulators and other veterans of the savings-and-loan crisis like the bad-bank solution. Bankers favor anything that allows them to get rid of their bad loans. Conservatives like anything that holds out the hope of attracting private capital. Populists tend toward nationalization.
(More here.)
WashPost
Friday, January 23, 2009
One group is convinced that mortgage foreclosures are at the root of the crisis. Solve that, and the rest will take care of itself.
Another faction is just as certain that toxic assets on banks' balance sheets are clogging the financial arteries, resulting in a credit crunch that is bringing down the economy. Their solution: have the government set up a "bad bank" to buy up all the toxic assets.
Still another has concluded that it's all hopeless and the only solution is for the government to nationalize the banking system, wipe out shareholders, fire all the executives, sell off all the bad assets at fire-sale prices and start again.
With all this conflicting advice, it's no wonder nobody can figure out what to do.
Most of the silver-bullet solutions are based on an oversimplified analysis or colored by the experiences, ideologies and self-interest of those who propose them. Regulators and other veterans of the savings-and-loan crisis like the bad-bank solution. Bankers favor anything that allows them to get rid of their bad loans. Conservatives like anything that holds out the hope of attracting private capital. Populists tend toward nationalization.
(More here.)
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