links for 2008-10-07

07 Oct
  • We need to remind ourselves that economic slumps — though wrenching and disillusioning for millions — rarely become national tragedies
  • Under the circumstances, there are two policy imperatives. First, regulators must sort out the banks that are sound from those that are insolvent. The insolvent institutions need to be merged or closed as expeditiously as possible. Sound banks should be encouraged to make loans to qualified borrowers. Some forbearance of capital requirements may be appropriate in order to ensure that good borrowers do not get turned down. Finally, there may be some banks that are neither clearly insolvent nor clearly sound, in part because of questions concerning the values of their mortgage securities. These banks should be allowed to continue operating, under close supervision, perhaps with loans from the Federal Reserve.
    Under no circumstances is it justified to attempt to revive the mortgage securities markets. Resumption of active trading in those markets is neither necessary nor sufficient to address tightness in credit markets caused by the flight to safety.
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Posted by on October 7, 2008 in Links


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