An air of consternation hangs thick over the skies of North America. The moribund U.S. economy is keeping the unemployment rate high and consumer prices depressed. With the prospects for additional stimulus gone, given the recent electoral outcome, the Federal Reserve was forced into action. The additional $600 billion in quantative easing is expected to raise U.S. economic activity by ¼ of a percent, which will not provide much of a boost. Some pundits believe that the Fed’s real motivation was preventing the economy from slipping into deflation. However, the true driver may be reviving the financial sector by inflating asset prices. The fragile health of the U.S. financial sector remains the main underlying problem.
Policymakers need to restore solvency to banks when faced with a systemic financial crisis. There are several methods that can force banks to clean up their balance sheets. Policymakers can force them to raise capital, which could involve receiving cash from shareholders or the government. They can force them to reduce liabilities, which can be done by writing down bad debts. Finally, it can be done by inflating the value of financial assets. Political and institutional constraints determine which approach policymakers will employ to address their financial sector problems. There is extensive literature that examines the various approaches. The over-riding conclusion is that the best approach to addressing systemic financial crises is to rapidly establish a broad set of criteria that will allow the banks to work through their problem loans, thus laying the groundwork for the start of a new economic cycle.
One of the best examples of this approach was Sweden. During the 1980s, the Swedes experienced a housing boom that soured in 1992—taking down most of the banking sector. The government was forced to inject funds to keep it from imploding. However, the banks were forced to surrender equity and write down bad loans. Existing management was also wiped out. In the end, the cost of the Swedish bailout was 4% of GDP, and the economy was soon on its way to a rapid recovery. A series of subsequent fiscal reforms stabilized the country’s debt load. The government’s decisive action limited the damage and allowed the country to emerge quickly from the crisis. Similar events in Thailand, Malaysia and Mexico also allowed those economies to overcome the effects of a deep financial crisis. However, not all countries are willing to take the necessary measures to overcome systemic problems. Japan, for example, unconditionally helped recapitalize its failing banks, without demanding any restructuring of bad loans. Aided by government support, the banks refused to clean up their balance sheets, and instead focused their attention on marginal businesses. Two decades later, Japan remains burdened by trillions of yen in unproductive assets, weak credit conditions and a moribund economy. Unfortunately, the U.S. is on the same trajectory.
Fed Chairman Ben Bernanke’s quantitative easing may be an attempt to boost bank balance sheets by inflating financial asset prices. Given the overhang of non-performing loans in the U.S., the need by households to clean up their balance sheets and the ongoing legal problems with mortgage foreclosures, banks will probably not be providing additional credit to the retail market. This means that they will probably inject the additional funds into the financial markets. As a result, asset prices will continue to rise—which will then boost balance sheets. The positive wealth effect will help households increase spending, but it will not do much for the employment picture. Construction levels will remain subdued and small firms will not be able to expand. Ironically, the monetary expansion will have an inflationary effect abroad. It will raise the demand for manufactured imports. Likewise, some of the additional funds will also make their way offshore, which will also enhance the level of economic activity in other countries. Clearly, we are seeing inflationary pressures on the rise in India, Australia and China. These central banks already took measures to tighten monetary policy. However, these measures are only sparking more capital inflows. Therefore, quantative easing may provide some relief to the U.S. by boosting the value of financial assets, but it will not do anything to assist in the economic recovery process. In the end, there is no substitute for cleaning up the balance sheet of a failed financial sector.
The lessons of financial crises from around the world are that insolvent banks need to be seized quickly. The management needs to be fired, the equity holders wiped out and balance sheet cleaned up. Failure to do so will leave the economy burdened with the deadweight of a dysfunctional financial system that will prevent it from embarking on the recovery phase of the business cycle.
85 Responses to “Need for Reform”
3389646 • May 30th, 2011 at 8:44 am
3389646 beers on the wall.
Marijuana Facts • May 30th, 2011 at 2:47 pm
I’m writing to let you know what a excellent experience my cousin’s girl found going through your site. She realized too many issues, which included what it’s like to possess an incredible teaching mood to get the rest clearly thoroughly grasp various extremely tough topics. You actually exceeded readers’ expectations. I appreciate you for presenting such essential, healthy, revealing as well as unique tips on your topic to Jane.
Florentino Czysz • May 30th, 2011 at 4:10 pm
I’d have to examine with you here. Which is not one thing I usually do! I take pleasure in reading a post that may make folks think. Additionally, thanks for permitting me to comment!
Zane Petrov • May 31st, 2011 at 2:47 am
Excellent blog. I was checking constantly this blog and I am quite impressed! Very helpful information specially the last part. I care for such information a lot. I was seeking this particular info for a long time. Thank you and good luck.
gay chatroulette • May 31st, 2011 at 4:51 am
Greetings, have you previously considered to write concerning Nintendo Dsi handheld?
mowing strip • May 31st, 2011 at 5:18 am
The very crux of your writing while appearing reasonable initially, did not work perfectly with me after some time. Somewhere within the sentences you managed to make me a believer but just for a short while. I still have a problem with your leaps in logic and you would do well to fill in those breaks. In the event you can accomplish that, I will undoubtedly be amazed.
chatroulette chat • May 31st, 2011 at 6:04 am
Bless you for this kind of data I has been browsing all Yahoo to be able to find it!
Houses For Cheap Longwood FL • May 31st, 2011 at 8:48 am
Hi there, I just stumbled your blog and wanted to say that I’ve truly enjoyed browsing your blog posts. After all I’ll be subscribing to your feed and I hope you write again very soon!
gpswatch • June 1st, 2011 at 1:57 pm
A handful of pretty decent tips mentioned right here. I most certainly will book mark are available rear for many more. Take care
best solar panels on the market • June 2nd, 2011 at 8:14 am
Aw, this was a very nice post. In thought I want to put in writing like this moreover – taking time and actual effort to make an excellent article however what can I say I procrastinate alot and by no means appear to get something done.
גוגל קידום אתרים • June 2nd, 2011 at 8:35 am
היי רציתי להמליץ על דף אינטרנט עם מידע ב קידום אתרים בגוגל. בוובסיט אפשרלקרא במידע על קידום אתרים בגוגל.
forerunner 305 • June 2nd, 2011 at 10:48 am
Interesting area of interest. Waiting to learn more relating to this.
Simply Ear Plugs • June 2nd, 2011 at 5:27 pm
Nice Post…
I found this really good post the other day….
זוגיות • June 2nd, 2011 at 10:15 pm
זקוקים לצמיחה אישית ועוד תוכלו לקבל עזרה מאנשי מקצוע מקצועיים בתחום זה.
havant hotels • June 2nd, 2011 at 10:56 pm
This design is incredible! You definitely know how to keep a reader amused. Between your wit and your videos, I was almost moved to start my own blog (well, almost…HaHa!) Wonderful job. I really loved what you had to say, and more than that, how you presented it. Too cool!
Ko Pha-Ngan | Cheap Thailand Holidays • June 3rd, 2011 at 5:57 am
Cheap Thailand Holidays…
[...]just below, are some totally unrelated sites to ours, however, they are definitely worth checking out[...]…
Recycled Teak Furniture • June 3rd, 2011 at 8:42 pm
There’s noticeably a bundle to learn about this. I assume you made sure nice factors in features also.
Chicken Coops Plans • June 3rd, 2011 at 10:55 pm
Once I originally commented I clicked the -Notify me when new feedback are added- checkbox and now each time a remark is added I get 4 emails with the same comment. Is there any approach you’ll be able to take away me from that service? Thanks!
Fashion And Apparel | Fashion Courses Online • June 4th, 2011 at 6:29 am
Fashion Courses Online…
[...]the time to read or visit the content or sites we have linked to below the[...]…
Getting Degrees Today • June 4th, 2011 at 6:33 am
I have realized that online diploma is getting common because attaining your degree online has developed into popular solution for many people. A lot of people have not really had a possibility to attend a conventional college or university yet seek the raised earning potential and career advancement that a Bachelors Degree grants. Still other folks might have a qualification in one course but want to pursue something they now possess an interest in.
Lose 10 Pounds • June 4th, 2011 at 10:16 am
An attention-grabbing dialogue is value comment. I think that you need to write more on this matter, it might not be a taboo topic however usually people are not enough to talk on such topics. To the next. Cheers
Dylan Fricke • June 4th, 2011 at 1:19 pm
Please let me know if you’re looking for a article author for your site. You have some really great posts and I believe I would be a good asset. If you ever want to take some of the load off, I’d love to write some content for your blog in exchange for a link back to mine. Please send me an email if interested. Kudos!
digital slr camera bags • June 5th, 2011 at 12:16 am
What necessary words… super, a remarkable idea.
מטבחים מעוצבים • June 5th, 2011 at 7:34 am
אני חייב לשתף אותכם שהזמנתי רהיטים חדשים לדירה שלי , הזמנתי ארונות מטבח , ארונות הזזה , מזנון .
LED light bulbs • June 5th, 2011 at 8:31 pm
Woah! I’m really loving the template/theme of this site. It’s simple, yet effective. A lot of times it’s hard to get that “perfect balance” between usability and appearance. I must say that you’ve done a fantastic job with this. In addition, the blog loads super quick for me on Safari. Superb Blog!
LED light bulbs • June 6th, 2011 at 3:22 am
Have you ever thought about publishing an ebook or guest authoring on other websites? I have a blog based upon on the same information you discuss and would really like to have you share some stories/information. I know my readers would enjoy your work. If you’re even remotely interested, feel free to send me an e mail.
massage mayfair • June 6th, 2011 at 12:06 pm
Your article usually possess alot of really up to date info. Where do you come up with this? Just declaring you are very resourceful. Thanks again
best pharmacy information • June 6th, 2011 at 12:36 pm
Superb read, I just passed this onto a colleague who was doing a little analysis on that. And he really bought me lunch because I located it for him smile So let me rephrase that: Thanks for lunch!
watch something borrowed online • June 6th, 2011 at 1:15 pm
When I originally commented I clicked the “Notify me when new comments are added” checkbox and now each time a comment is added I get several e-mails with the same comment. Is there any way you can remove people from that service? Thanks a lot!
Tanja Avrett • June 6th, 2011 at 2:08 pm
I’ve to confess that i sometimes get bored to learn the whole thing however i feel you can add some value. Bravo !
Carleen Finkle • June 6th, 2011 at 8:52 pm
Seashore homes are certainly popular in the vicinity, so even while the men and women earlier mentioned are usually not consequently agreeing with just what I think, they still do bring about reasonably excellent things relating to property right here.
Madlyn Jauron • June 7th, 2011 at 3:01 pm
Thanks a bunch for an additional valuable post. Ive been checking this site often for the past couple of months, and its currently one in every of my favorite sites! . I work on a website that has very similar content, would you have any interest write a guest post on it? Shoot me an email if you’re interested!
Bhupendra • June 7th, 2011 at 3:48 pm
i have lady gaga tickets
קניית רכב • June 7th, 2011 at 3:57 pm
היי רציתי להמליץ לכם על אתר למכירת רכבים מכיוון שמכירת רכב היא לא פעולה פשוטה וצריך לבצע אותה על הדרך הטובה והמשתלמת ביותר, וכדאי להעזר בחברה מקצועית בעבור זה.
interactive smart boards • June 8th, 2011 at 6:43 am
Congratulations on having One of the most sophisticated blogs Ive come throughout in most time! Its just incredible what you can eliminate from a thing as a result of how visually beautiful it’s. Youve put collectively a very good blog space -great graphics, videos, layout. This can be undoubtedly a must-see weblog!
Sextus • June 8th, 2011 at 7:19 am
Nueter this puppy arrive Nov 2010!!?!!!?!!
Valentine Boccio • June 8th, 2011 at 10:53 am
Have you ever considered publishing an ebook or guest authoring on other websites? I have a blog based on the same ideas you discuss and would really like to have you share some stories/information. I know my audience would enjoy your work. If you’re even remotely interested, feel free to shoot me an e-mail.
Alan Vindermere • June 8th, 2011 at 1:28 pm
I am ipressed by the quality of opinions on this website. There are a lots of good resources here. I just thought that you might be new to blucigs review, than by all means come in and check our stuff. I am sure I will visit this place again soon. Brilliant, it’s a great post. All the best.
Hair Extensions Online • June 8th, 2011 at 2:34 pm
I picture this may well be diverse upon the written content material? nonetheless I still imagine that it usually is suitable for virtually any form of topic subject material, as a result of it would frequently be gratifying to resolve a heat and delightful face or perhaps listen a voice whilst preliminary landing.
Dallas Crossfit • June 8th, 2011 at 5:03 pm
Superb read, I just passed this onto a friend who was doing a little analysis on that. And he actually bought me lunch because I discovered it for him smile So let me rephrase that: Thanks for lunch!
Dorthey Janney • June 8th, 2011 at 9:27 pm
This post seems to get a good ammount of visitors. How do you get traffic to it? It offers a nice unique twist on things. I guess having something useful or substantial to give info on is the most important factor.
click here • June 9th, 2011 at 4:52 am
It’s not that I want to copy your internet site, but I really like the design and style. Could you tell me which theme are you using? Or was it custom made?
nunes • June 9th, 2011 at 5:46 am
After getting executed the very best, your INTEREST RATES computer software offers you some reactions.
ondergoed kopen • June 9th, 2011 at 9:06 am
I’m impressed, I must say. Very rarely do I come across a blog that’s both informative and entertaining, and let me tell you, you’ve hit the nail on the head. Your blog is important, the issue is something that not enough people are talking intelligently about
Why Join eXp Realty • June 9th, 2011 at 11:47 am
Thanks, wonderful blog… really enjoy it and added into my social bookmarks. Keep up the good work
201 CRM 17 Email Encryption Outlook • June 9th, 2011 at 12:22 pm
Great job, thanks
Homes Oviedo FL • June 9th, 2011 at 3:48 pm
Great job, are you looking for real estate in Lake Mary, FL? Learn where the deals are, get short sale lists and find town homes for sale in Winter Park.
Verifone vx670 • June 9th, 2011 at 5:07 pm
There are several posts out there near this, I believe taking there reference could experience made this spot or article really informative. I am not expression this information is unhealthy. Simply I can pronounce how the info provided here was unique, merely to make it more very near to complete, supporting along with other former information will receive been actually good. The points you receive touched here i will discuss really important, thus I will spot many of the information here to construct this actually best for entirely the newbie’s here. Thank you for this information. Actually helpful!
Philips LED light bulbs • June 9th, 2011 at 7:40 pm
I’m curious to find out what blog platform you happen to be utilizing? I’m experiencing some small security issues with my latest blog and I’d like to find something more safe. Do you have any solutions?
bootleg movies • June 9th, 2011 at 7:42 pm
Thank you for making the sincere effort to discuss this. I feel very sturdy about it and wish to read more. If it’s OK, as you acquire extra intensive wisdom, could you thoughts adding extra articles similar to this one with additional information? It will be extraordinarily useful and helpful for me and my friends.
Crossfit Lakewood • June 9th, 2011 at 11:47 pm
Many thanks for creating the effort to talk about this, I feel strongly about this and love studying a great deal more on this matter. If feasible, as you gain expertise, would you mind updating your webpage with a great deal more information? It’s very helpful for me.
Stroller • June 10th, 2011 at 11:20 am
your blog’s theme is cool and loving it. Your reports are wonderful. You should keep it up. Cheers!
Cheap Broadway Tickets • June 10th, 2011 at 2:18 pm
I hope you never stop! This is one of the best blogs Ive ever read. Youve got some mad skill here, man. I just hope that you dont lose your style because youre definitely one of the coolest bloggers out there. Please keep it up because the internet needs someone like you spreading the word.
Cheapest Bail Bonds • June 10th, 2011 at 2:47 pm
Perfect article. It is really not hard to read your blog. This article connected with your site is exactly good, and your blog design is Easy generous. It appears like not dazzled. So great. Keep the job accomplished well. http://bailbondscheapest.com/
massage south kensington • June 10th, 2011 at 9:19 pm
Congratulations for posting such a useful blog. Your blog isn’t only informative but also extremely artistic too. There usually are extremely couple of individuals who can write not so easy articles that creatively. Keep up the good writing !!
GFI Norte • June 11th, 2011 at 1:15 am
Many thanks for creating the effort to talk about this, I feel strongly about this and love learning a great deal more on this subject. If feasible, as you gain knowledge, would you mind updating your webpage with a great deal more info? It’s really helpful for me.
rebar tiers • June 11th, 2011 at 3:03 am
Greetings from Florida! I’m bored to tears at work so I decided to check out your blog on my iphone during lunch break. I really like the knowledge you present here and can’t wait to take a look when I get home. I’m amazed at how quick your blog loaded on my phone .. I’m not even using WIFI, just 3G .. Anyhow, great blog!
tips to date models • June 11th, 2011 at 6:07 pm
Very efficiently written information. It is going to be worthwhile to anybody who usess it, together with myself. Keep up the nice work – for sure i’ll try extra posts.
Htc Thunderbolt screen protector • June 11th, 2011 at 9:03 pm
Dwell not upon thy weariness, thy strength shall be according to the measure of thy desire.
rasteirinhas femininas • June 12th, 2011 at 9:16 am
I like the dear knowledge you offer for your articles. I will bookmark your weblog and have my youngsters take a look at up here generally. I’m fairly positive they’re going to be told loads of new stuff here than any one else!
Penelope Touchton • June 12th, 2011 at 10:12 am
Thank you for therefore extreme a brilliant blog. where else might one gain this one type of data written inside extraordinarily one incite full way? I even have a delivering because i’m impartial nowadays functioning on, moreover I actually have be wanting as very information.
bed bugs nyc • June 13th, 2011 at 1:56 am
What i don’t realize is in fact how you’re not actually a lot more neatly-liked than you may be right now. You are so intelligent. You understand therefore significantly in the case of this topic, made me for my part believe it from a lot of numerous angles. Its like men and women don’t seem to be involved until it’s one thing to do with Lady gaga! Your own stuffs nice. Always deal with it up!
Virtual Real Estate Office • June 13th, 2011 at 3:28 am
Hi there, Your post is an excellent example of why I keep coming back to read your excellent quality content….
design agency • June 13th, 2011 at 3:30 am
It’s a beautiful country, much more individuals have to recognise that.
Nicky Volek • June 13th, 2011 at 4:23 am
That which you mentioned produced a lot of sensation. But, consider about this, what in case you added just a little content material? I imply, I dont need to let you know the best way to run your blog, but what if you additional some thing to possibly get peoples consideration? Much like a video or perhaps a picture or two to obtain individuals fired up about what youve obtained to say. In my opinion, it might make your blog arrive to lifestyle a bit bit.
John Benitez • June 13th, 2011 at 4:43 am
Great blog post. It’s useful information.
stop kidney stones • June 13th, 2011 at 6:45 am
Couldn’t be said any better. Reading your update reminded me of my previous room mate! He continuously kept chatting about this. I’ll pass on your article to him. Rather sure he will have a good read. Thanks for letting us know!
Vehicle Wraps • June 13th, 2011 at 8:05 am
jeanbozlov? Japan earthquake: Returning home to Japan and marveling at a society’s strength – latimes
create software • June 13th, 2011 at 9:28 am
Hi, very nice post. I was looking for something similar to this. Thanks for this useful information.
green iphone • June 13th, 2011 at 11:06 am
Hello! Would you mind if I share your blog with my facebook group? There’s a lot of people that I think would really enjoy your content. Please let me know. Many thanks
bolsas de couro • June 13th, 2011 at 12:53 pm
You lost me, friend. I mean, I imagine I get what youre saying. I’m sure what you’re saying, but you just appear to have forgotten that might be some other folks inside world who view this matter for what it truly is and will perhaps not trust you. You may well be turning away a lot of people who was lovers of the website.
annuaire gratuit • June 13th, 2011 at 4:22 pm
There are definitely quite a lot of details like that to take into consideration. That could be a great point to convey up. I provide the thoughts above as normal inspiration but clearly there are questions just like the one you convey up the place a very powerful thing can be working in trustworthy good faith. I don?t know if greatest practices have emerged round issues like that, however I am positive that your job is clearly identified as a good game. Each boys and girls feel the influence of just a second’s pleasure, for the remainder of their lives.
busy jawor • June 13th, 2011 at 5:10 pm
So rv solar panels when ever a lot of these words and phrases tend to be consumed in his or her entirety, precisely what merging financial loans in addition to unsecured debt settlement fiscal loans really mean is certainly taking out that loan that can intermix as well as pay all the borrowings.
Philips LED light bulbs • June 13th, 2011 at 6:56 pm
I’m not sure exactly why but this blog is loading extremely slow for me. Is anyone else having this issue or is it a issue on my end? I’ll check back later and see if the problem still exists.
Cameraless iPhone • June 13th, 2011 at 7:27 pm
Howdy I am so glad I found your weblog, I really found you by mistake, while I was looking on Digg for something else, Anyways I am here now and would just like to say thanks for a incredible post and a all round interesting blog (I also love the theme/design), I donít have time to go through it all at the moment but I have bookmarked it and also added your RSS feeds, so when I have time I will be back to read much more, Please do keep up the awesome job.
Exotic Car Rental Philadelphia • June 13th, 2011 at 8:47 pm
You not going to believe this but I have lost all day searching for some articles about this. I wish I knew of this site earlier, it was a fantastic read and really helped me out. Have a good one
HTC Evo 3D Screen protector • June 14th, 2011 at 1:26 am
Nice job on the pic
Recycled Teak Furniture • June 14th, 2011 at 4:51 am
You made some first rate factors there. I looked on the web for the difficulty and located most individuals will associate with along with your website.
Business Email Lists • June 14th, 2011 at 6:53 am
Great job, thanks
Indonesian Furniture Wholesaler • June 14th, 2011 at 8:31 am
Oh my goodness! an incredible article dude. Thank you Nevertheless I’m experiencing challenge with ur rss . Don’t know why Unable to subscribe to it. Is there anyone getting an identical rss downside? Anyone who is aware of kindly respond. Thnkx
משלוחי פרחים לתל אביב • June 14th, 2011 at 10:57 am
רוצים להגביר לבית פרחים יפים בשלל צבעים כנסו לחנויות המתמחות עד זכר וקשטו כלי חקלאי הבית בשלל פרחים מדהים ..
lifecoaching certified • June 14th, 2011 at 11:19 am
Hi, Neat post. There is a problem together with your site in internet explorer, may test this… IE nonetheless is the marketplace leader and a good component of other folks will pass over your great writing because of this problem.
Google Maps Data Extractor • June 14th, 2011 at 12:59 pm
I’m not sure exactly how I discovered your blog because I had been researching information on Real Estate in Longwood, FL, but anyway, I have had a pleasant time reading it, keep it up!
bikinicheaps • June 14th, 2011 at 1:32 pm
After research a couple of of the weblog posts in your website now, and I actually like your manner of blogging. I bookmarked it to my bookmark web site checklist and shall be checking back soon. Pls take a look at my website as properly and let me know what you think.
Leopoldo Zenon • June 14th, 2011 at 1:49 pm
I learned alot by looking at your article. I have been reading through your blog alot over the past few days and it has earned a place in my bookmarks.
