Paul Klemperer, 25 September 2009

The crisis set policymakers scrambling for appropriate mechanisms to respond to financial turmoil. This column proposes a new auction design that can be used for toxic asset purchases and central bank liquidity auctions in a credit crunch.

Klaus F. Zimmermann, Dorothea Schäfer, 13 June 2009

Banking sectors worldwide are still suffering from the effects of the financial crisis. This column presents a plan of how governments can efficiently relieve ailing banks of toxic assets by transferring them into bad banks, an idea that is gaining popularity.

Dennis Snower, 20 May 2009

Under the threat of the financial crisis, US banks have received, without much controversy, huge bailouts. This column argues that the rescue plan ought to act as an automatic stabiliser, providing large bailouts to those institutions whose toxic assets turn out to be worth little and smaller bailouts to those whose toxic assets are worth more. But that is precisely what the Geithner Plan doesn’t do.

Salvatore Rossi, 25 February 2009

There are two schools of thought on how to get credit flowing again. One suggests buying the toxic assets, the other says to recapitalise banks. This column says that both approaches are necessary, though the right balance will vary across nations. The real difficulty is aligning incentives – in both pricing assets and recapitalising banks, bank managers’ interests may thwart governments’ objectives.

Daniel Gros, 05 February 2009

Uncertainty over losses from toxic assets is blocking the resumption of bank lending – thus prolonging and deepening the recession. Governments should take over these assets to kick-start credit markets, but to avoid the “market for lemons” problem, the bad bank should be big, and banks should be forced to transfer their entire portfolio of toxic assets.

Charles Calomiris, 22 September 2008

This column, posted 19 September on an FT forum, suggests a better way of ending the financial crisis. Instead of buying toxic assets, the US government should buy preferred stock capital in ailing banks that could raise matching private sector equity. This would avoid the intractable problems of how the government should value the toxic assets and directly address the banks' immediate problem – a lack of bank capital.


CEPR Policy Research