The Case Against New Banks

I’d been intrigued by the Paul Romer proposal to use taxpayer funds to set up new banks rather than muck around with the old ones, but I think Felix Salmon’s rejoinder is convincing. So I’m back to the view that we need to nationalize, clean up, and then recapitalize our insolvent banks.

It appears, however, that the Obama administration is not going to go in that direction. The good news about what they seem to be considering is that it will give us a lot of chances to use the cool phrase “zombie bank.” The bad news is that it poses substantial risks that the economy will be devoured by zombie banks.