James Baker was Treasury Secretary to President Reagan. When he says that the US is “repeating Japan’s mistake by viewing our banking crisis as one of liquidity and not solvency”, the blog listens.
His prescription is stark: “we should divide the banks into 3 groups – the healthy, the hopeless and the needy”. And he suggests policymakers should “leave the healthy alone, and quickly close the hopeless. The needy should be re-organised.”
Baker also argues in today’s Financial Times that “this crisis demands a pragmatic, comprehensive plan. We simply cannot continue to muddle through it with a Band-Aid approach.” And he goes on to echo former Treasury Secretary Brady’s concern that policymakers have not yet realised “the true scope of the problem”.
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