ACCUMULATING PERIPHERALS


Now that’s a bad bank by mattsteinglass
March 9, 2009, 10:33 am
Filed under: Economics

A problem with Alan Blinder’s recommendation of a “good bank/bad bank” approach, rather than bank nationalization:

the basic idea is to break each sick institution into two. The “good bank” gets the good assets, presumably all the deposits and a share of the bank’s remaining capital. As a healthy institution, it can presumably raise fresh capital and go on its merry way as a private company.

But deposits are debts, not assets. A bank with $10 billion in deposits is a bank that has promised to pay $10 billion to its depositors whenever they demand it. Presumably somebody like Alan Blinder knows this and the mistake is a result of weird copy editing or something. A bank with good assets would a bank that has lots of high-performing loans out to stable and profitable blue-chip corporations, like GE. Oh, wait a minute…

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