Thursday, February 12, 2009
Bank Bailout: Nationalization
With regards to what to do with the banks I heartily agree with Megan McCardle's recommendation: triage. Find out which banks are clearly have no hope of returning to solvency, seize them and liquidate them. At that point, I think those banks that are marginal will attempt to either sell off assets/raise private capital to boost their balance sheets as opposed to waiting for more TARP money. What I don't get is why this isn't considered as the default option. We have an institution that does this and does this well: the FDIC. In fact, said institution was created in response to the last time we saw such a banking panic, the Great Depression. To some degree it seems that both Hank Paulson and Tim Geithner have formulated their bailout plans with the main goal of ensuring that Vikram Pandit and Ken Lewis can remain as CEOs.