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You only need to realise the losses by selling the assets if you want to open up room in the balance sheets for more lending (sell off the bad loans so you can give out more loans).

So stabilizing the banks won't solve the credit squeeze. It will just stabilize the financial system. Which is no mean feat, but still only a partial solution to part of the problem.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Wed Feb 11th, 2009 at 10:08:38 AM EST
[ Parent ]
Stabilisation is needed in the interbank market for normal lending to re-start. Right now, banks do not trust one another, and thus do not fund one another.

Cleaning up banks will unclog several basic functions of the banking world which are very necessary and are still seriously constrained right now.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Feb 11th, 2009 at 10:27:30 AM EST
[ Parent ]
But is this really the best of all possible ways to clean up the banks?

Or at least, to clean up the banking functions which they're supposed to perform - which may not be the same thing.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Feb 11th, 2009 at 06:18:40 PM EST
[ Parent ]

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