Saturday, March 14, 2009
The financial sector is holding the economy hostage
The world's largest financial institutions urged the G20 financial leaders on Friday to endorse the "bad bank" approach to dealing with the credit crisis, an expensive model one expert likened to another ransom note. The request came in a letter to U.K. Prime Minister Gordon Brown from the Institute of International Finance, a trade group of the world's largest global banks. The IIF wants Brown and his G20 colleagues to push the Obama administration in the direction of setting up a bad bank. Under this approach, governments would buy toxic assets from banks at a price higher than the prevailing market rates. For the time being, private investors simply won't buy the assets at the prices that the banks want. As a result, banks have huge holes in their balance sheets.