Bad bank or nationalisation, only two choices

Germany’s financial crisis much worse than previously reported

Der Spiegel has the story this morning that German banks are sitting on toxic assets worth €300bn, of which so far only a quarter has been written off. This figure is signficantly worse than anything reported so far, and is almost certainly likely to trigger the creation of bad banks –institutions that suck up toxic papers to allow the “good bank” to get back on its feet again. The information, according to Der Spiegel, was contained in an unpublished poll conducted by the Bundesbank and Bafin, the bank supervisory authority, among the country’s 20 largest banks.

The UK banks are in a similarly bad position, according to British newspapers. The Independent reports that British banks are technically insolvent. This morning, the government will present a scheme to extend the bank bailout package signficantly. Britain, too, is moving towards a bad bank.

Paul Krugman this morning has two posts (here and here) why bad banks, or at least the kind currently under discussion, are a bad idea. For him it is like rearranging deck chairs on the Titanic.

Willem Buiter is also hostile to the idea of a bad bank, and he insteads pleads for full nationalisation.

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