Paul Krugman recently wrote about his support for the nationalization of banks amid growing support of the idea. Nouriel Roubini, has also written in support of bank nationalization, and believes that this should occur sooner rather than later. The credit crisis which began several months ago, continues as banks are unable to raise enough private capital to offset the amount of writedowns that are necessary to remain out of the “zombie” state. The current plan of the Treasury Department is to run “stress tests” on the banks that have received TARP (Troubled Asset Relief Program) money to see which banks are most susceptible to failure. On another front, the Fed has recently been altering the structure of a different acronym, the TALF (Term Asset-Backed Loan Facility) to try to get credit flowing again.
I would like you to consider the options that have been proposed to fix the financial sector.
1. Do you believe that nationalization of the banking system will resuscitate these “zombie” banks? Try to find supporting evidence.
2. What do you believe would happen if these banks were instead allowed to continue without more assistance or nationalization?
3. Try to explain how one of these “acronyms” is designed to work, and in your judgement if it is working.
4. Compare the problems that our financial sector is going through to those of another country that has faced these issues. Most notably, Sweden and Japan have faced financial crises in recent times.
For each of these, you need to find your own sources (there are many stories out there). You should NOT use some random blogger’s story or Wikipedia to support your opinion. You should go BEYOND the articles that are listed here. If you are unsure of a definition, look it up, and try to dig deeper. Try to stick to reliable news sources and facts. Remember that for these assignments you need to put forth your opinion and back it up with facts.
(Lastly… a good and humorous explanation of how mortgage backed securities got us into this mess)