Fixing the banking problem is simple
The problem is that the simple isn’t easy.
. . . we should divide the banks into three groups: the healthy, the hopeless and the needy. Leave the healthy alone and quickly close the hopeless. The needy should be reorganised and recapitalised, preferably through private investment or debt-to-equity swaps but, if necessary, through public funds.
Eventually we will have to do this anyway. There is conservatively $10 trillion in paper assets that have disappeared in the last year. Most of it is not coming back. Whatever loans those assets capitalized are now unsecured. That is the reality; we’re better off in the long run if we recognize the reality now.
Illiquid institutions might get better through the infusion of additional capital. Insolvent ones won’t. It’s time for an honest appraisal of which banks are which.
