How to Save US Banks?

How to Save US Banks?
Possible actions for the Obama administration include government financial guarantees and a ''bad bank'' to hold troubled assets. Or is the answer to nationalize? Transcript of radio broadcast: 30 January 2009

This is the VOA Special English Economics Report.

Many banks are still not lending. They worry that they will not have enough capital to cover losses. But the situation denies many businesses the credit they need to operate, and further slows a struggling economy.

In the United States, the government has so far provided almost one hundred fifty billion dollars to banks, mainly through buying shares. Yet this may not be enough to save some major banks. By some estimates, banks have at least one trillion dollars in losses that they have not yet reported.

The new administration of President Barack Obama is considering ways to save banks.

One possibility is to expand federal guarantees against losses on some troubled financial assets. The government has already offered guarantees to Bank of America and Citigroup. But the cost of this kind of insurance could be huge.

Another possibility is to create a so-called bad bank. It would take questionable securities held by other banks. The idea would be similar to the Resolution Trust Corporation set up by the government in nineteen eighty-nine. It was formed to sell assets from failed savings and loan banks.  

But it is difficult to put a price on troubled securities. Taxpayers would lose money if the government pays too much. And if it pays too little, banks could still fail.

Some people see nationalization as the answer. That is when a government takes ownership of a private business, often with the idea of selling it back to investors later. Existing shares become worthless.

In the early nineteen nineties, Sweden nationalized some banks and later sold their troubled assets, recovering some costs. But a similar effort in the United States, the world's biggest economy, could take years. And critics warn that lending and politics do not mix.

Coming up with a plan to fix the banks and the financial system is now the job for Tim Geithner. The Senate confirmed him this week to replace Henry Paulson as Treasury secretary. Tim Geithner's last job was head of the New York Federal Reserve Bank.

Supporters said he is the best person to deal with the financial crisis. But one-third of the Senate, mostly Republicans, voted against him.

He faced criticism for his failure to pay thirty-four thousand dollars in taxes when he worked for the International Monetary Fund. He blamed "careless mistakes." As Treasury secretary he is the nation's chief tax collector.

And that's the VOA Special English Economics Report, written by Mario Ritter. I'm Steve Ember.