Looks like Denninger’s new bank idea is getting some traction. Is there hope yet for the future of civilization?
There 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, and Paul 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.)
I may not have done the proposals justice, so read them yourself and see what you think. But before you get too excited, remember that there is nothing like this in Geithner’s Financial Stability Plan, so it is unlikely to happen.