Or so argues Simon Johnson, the former research director of the IMF, in this Fresh Air interview. Johnson is a guy with rather a lot of experience managing economic crises and breaking up and reconstituting banks, and starting around the 17-minute mark, he explains the Japanese experience -- where the U.S. Treasury and the IMF recommended receivership -- and the Swedish experience, where the banks were absorbed, the executives and shareholders wiped out. "The key" of the Swedish experience was "facing down the bankers." The problem in America, he says, is that the regulatory apparatus is largely made up of bankers and people who are sympathetic to bankers. "On [Geithner's] board, for example, back in the spring was Jami Dimon, head of JP Morgan. And the way, of course, in which Bear Stearns was rescued back in the spring was being sold, at what many thought was a very low price, to JP Morgan. It's a very strange world in which you can sell, over a weekend, such a valuable asset to someone who's on your board of directors, and nobody even raised an eyebrow about that." Terry Gross goes on to ask if Johnson has ever advised a country that successfully solved a banking crisis by buying the troubled assets. "No," laughs Johnson, "I don't think anyone has ever bought troubled assets like that. It's a terrible idea, by the way. If you look at what Sweden did and talked to the people who managed their bank takeovers, they will tell you it was very hard to value the main assets held by the banks. it was real estate, and real estate always does what it's doing now. It becomes very illiquid. It's very hard to know what is the market price. That's the problem. "But Mr. Paulson and Mr. Bernanke have presented this as 'oh my goodness, we've never seen this before, the markets have dried up, it's crazy and temporary and will only go away if we pay top dollar for these assets.' That's not true. This happens all the time in financial crises. You always get illiquidity. You always get the value of assets becoming questionable. What you do is the takeover and the nationalization and the re-privatization of banks and while you're doing that you take the really bad assets off the balance sheets and create an asset management company -- now being called a 'bad bank' -- that's a separate entity and does loss minimization. And that was done by the people who ran the Resolution Trust Company in the 80s. They did a great job, by the way." "I would like to stress that while I think it's pretty straightforward in economic terms, I do realize it's hard in political terms. These banks are very powerful politically. They make a lot of contributions and are very interwoven with political elites, not just in this administration, but in all administrations. And it's very hard to face them down." Johnson, by the way, turns out to have a blog.
