Tuesday, May 5, 2009

Update to Judge Posner's Failure Blog

The second post on Richard Posner's new blog about A Failure of Capitalism is now up. It is the first of three promised posts on the federal government's responses to the current depression. Today's post looks at the Fed's "easy money" response, Treasury's effort to partner with private investors to buy mortgage-related assets from banks, and planned legal changes to give relief to underwater mortgagors.

Of particular interest to me is the paragraph explaining why nationalization of "bad banks" would be a wrong step. Nationalization would be much more complicated, time-consuming, and unpredictable than it at first sounds: Because the bad banks are not worthless, their current owners would need to be compensated in any takeover. And then the government would face the question of what to do with the banks it would now own.

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