Arnold Kling  

Good Luck, Jeremy Stein

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Recommended Reading... An Anti-Stimulus Conference...

The Wall Street Journal blog (Justin Lahart) reports,


He advocated aggressive government audits of banks, aimed at separating solvent ones from insolvent ones. Once that was done, insolvent banks would be forced into closure or sale while solvent ones would be pushed to raise more private capital.

In Washington, we say that a gaffe is when someone tells the truth. Mr. Stein has committed a terrible gaffe (kind of like when Larry Summers said that a fiscal stimulus had to be timely, targeted, and temporary), and I'm sure he'll be re-programmed shortly.


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bjk writes:

One of the problems is that these banks don't want to take the hard medicine of writing down the loans, and another problem is that taxpayers may never recover the dollars put in the banks. How about buying tax loss credits from the banks? That would motivate the banks to write down bad assets (because they would get the credit), and by selling the credits, the banks would get recapitalized, and taxpayers would have a better chance of getting their money back (in effect the future tax rate on banks would be raised).

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