Willem Buiter, 14 March 2009

Zombie banks need fixing. Good Bank and Bad Bank solutions are the leading contenders. This column reviews the implications for distributional, incentive, and financial stability effects. It argues that too-big-too-fail bank should immediately be taken into public ownership and restructured decisively through a mandatory debt-to-equity conversion or debt write-down. The Fed and Treasury have been captured by save-unsecured-creditors reasoning pushed by special interest groups.

Robert Hall, Susan Woodward, 24 February 2009

Japan’s woes in the 1990s were prolonged by allowing ‘zombie’ banks to continue doing business (deleveraging slowly). Preventing this is a priority in today’s crisis, hence the many schemes for creating good/bad banks. This column, coauthored by one of the world’s leading macroeconomist, suggests a novel way of separating existing banks into good and bad entities.

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