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Large US banks on edge of collapse
By Steve Lohr, New York Times None of the experts' research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country.
Some of the large banks in the United States, according to economists and other finance experts, are like dead men walking.
A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.
None of the experts’ research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are insured by the US government. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.
But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department’s plan outlined last week.
The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.
“The historical record shows that you have to do it eventually,” said Adam Posen, a senior fellow at the Peterson Institute for International Economics. “Putting it off only brings more troubles and higher costs in the long run.”
Of course, the Obama administration’s stimulus plan could help to spur economic recovery in a timely manner and the value of the banks’ assets could begin to rise.
By Steve Lohr, New York Times None of the experts' research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country.
Some of the large banks in the United States, according to economists and other finance experts, are like dead men walking.
A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.
None of the experts’ research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are insured by the US government. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.
But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department’s plan outlined last week.
The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.
“The historical record shows that you have to do it eventually,” said Adam Posen, a senior fellow at the Peterson Institute for International Economics. “Putting it off only brings more troubles and higher costs in the long run.”
Of course, the Obama administration’s stimulus plan could help to spur economic recovery in a timely manner and the value of the banks’ assets could begin to rise.
