Yesterday, I posted an item on Naked Capitalism about the bankruptcy of Yamaichi Securities in 1996 as testament to lingering weakness in a country’s financial sector if sick financial institutions are not dealt with swiftly. In essence, the entire Japanese banking sector remained weak for years despite multiple cyclical upturns after the Bubble Economy [...]

If you haven’t noticed, I think the Geithner Plan, while far from perfect, has a reasonable chance of success. Marshall, too, believes the plan could work as he has suggested in his last post. The optics of it are another matter.
“Goldman has already said they will repay their TARP money within a month [...]

I do believe the U.S. policy response to this financial crisis is very much like the Japanese response to their crisis in the 1990s. I have a post up at “naked capitalism” making this point. I would add, however, that America is in a worse position due to its lack of exports and [...]

Marshall Auerback here.
I do not like the Geithner Plan because it is needlessly expensive. Nevertheless, it could well work. My main objection is that it constitutes the most regressive transfer of wealth in history and it’s being done BY A DEMOCRAT ADMINISTRATION!!!! Unbelievable.
It has to be done this way in terms of securing funding for [...]

FDIC Chairman Sheila C. Bair said, “It has been clear for some time that troubled loans and securities have depressed market perceptions of banks and impeded new lending. Difficult market conditions have complicated efforts to sell these troubled assets because potential buyers have not had access to financing. The Legacy Loans Program aligns [...]

Below are the just-released details on the U.S. Treasury Public Private Partnership Investment Program. I will have commentary shortly in a separate post. However, before I do, I am posting the details here for your reference.

You may have seen Ed’s post “Gillian Tett: Washington is talking to Swedes about banking crisis solutions” a week back about how the U.S. government was getting ready to talk to Swedish officials regarding the banking crisis. This is a very important development and I have a lot more to provide below on the issue as it pertains to today’s events and Japan’s crisis early this decade.

Today, I want to make the case for seeing writedowns as central to this global downturn. To do so, we need to rewind and compare what is going on today with what we have experienced in the past. Drawing on this comparison, I can demonstrate that traditional policy tools are likely to be ineffective today. Moreover, the present course of action will also prove inadequate. Other more aggressive means must be applied in order to ensure a more stable banking system and a path to recovery. Likely remedies will include a reorganization of large swathes of the U.S. banking system.

This is a post I wrote last week on naked capitalism.

In any banking crisis, the central question always is: which financial institutions now operating are insolvent, how can we identify them and remove them from the system, and how can we recapitalize the remaining institutions in a way that restores confidence to the system generally? Therefore, any response by policy makers must address three separate issues:

The following is a post from the site Euro Intelligence, published just 5 days ago regarding the Swedish solution to the banking crisis. I am providing this version with the author’s permission, who should be credited with much of the Swedish bank resolution solution’s creation. A longer version is linked at the bottom of this post.

Lars Jonung, who wrote this piece, is now a research adviser at the European Commission in Brussels. He was previously professor of economics at the Stockholm School of Economics. He has published many books and articles in English and Swedish and is the co-author of the leading macroeconomic textbook in Swedish.

You should also note that Jonung served as chief economic adviser to the Prime Minister Carl Bildt in 1992-94 when the Swedish solution was implemented. His characterization of events in this piece is very much at odds with what Alan Blinder recently said in a New York Times piece. Given his role in the process, this discrepancy should be noted.