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What to Do When a Bank Collapses – WSJ.com

January 22nd, 2009 No comments

I’m about as much on the fence about the issue as this article is:  Do we want banks to be owned by the government?  Most of the disadvantages listed would take time to accrue, in my mind.  I don’t see the government buying up all the banks, and then holding on to them for years.  A better approach would be to buy up  the biggest “bad” banks (I’m looking at you Bank of America,) get rid of the bad debt (but how?) and then privatize them again.  This is a case where trickle down might actually work.  If the big banks were stabilized, credit could begin to flow again, and the smaller banks would have breathing room to operate.

But here is an image for you: “Think of the bank as the DMV of the future, run by government employees who have little upward mobility,” says Mr. Kaytes.

And I agree with loosening up some lending standards due to pressure to achieve social objectives; but don’t open the flood gates, which unfortunately is what would likely happen.  The government always seems to achieve mediocrity without moderation.  Then again, wouldn’t that be better than the lending free for all we just had that got us into this mess?

The part that really irritates me about this whole banking siuation is that the only people who comprehend these exotic instruments enough to unwind them, are the people who created them.  So they are still valuable.

What to Do When a Bank Collapses – WSJ.com.