http://baselinescenario.com/
The “Good Bank” Proposal with 3 commentsThere has been a small but increasing amount of attention being given to the “good bank” idea: instead of creating a government entity to buy toxic assets from existin banks - or nationalizing existing banks, removing their toxic assets, and then reprivatize them - why not create brand new, good banks with the same government money, enabling them to lend money unencumbered by previous bad decisions, and then privatize them? (Willem Buiter floated this idea on January 29, andPaul Romer has a similar proposal in the WSJ, although I’m proud to say that Nemo, who has his or her own blog, raised it in a comment on this blog two weeks earlier.)
Romer suggests using government capital to create new, healthy banks that can essentially compete with the existing banks, which can then be treated under existing rules and regulations - if they become insolvent, they get taken over; some of their liabilities (like FDIC- insured deposits) are guaranteed, and some aren’t - and that’s that. Buiter goes a step further and recommends taking away banking licenses from the legacy bad banks and making them institutions that just run off their existing assets, in part by selling their good assets to the new good banks.
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