Can Anybody Out There Fix the Banking System?

By Joe Nocera

My column this Saturday is about the need to find a systemic solution to the problems that continue to plague the banking system. With Citigroup getting a new bailout a few months ago, and Bank of America getting one this week, clearly the current “let’s fix one bank at a time” approach isn’t working.

As it turns out, I heard quite a few interesting ideas. William Ackman, who runs the hedge fund Pershing Square, is proposing a new bank that, unencumbered by bad assets, would be able to jump-start lending by buying loan participations made by other banks. I heard several suggestions that we should simply nationalize banks that are insolvent, as Sweden did in the 1990s. Though this cuts against the American grain — and leaves shareholders with nothing — it does make it easier for the government to get the banks back on their feet, and presumably, once the crisis ends, to hand them back to the private sector. I had sources tell me that the banking crisis won’t end until the government comes up with a place to stem foreclosures, which after all are at the root of the problem. (Needless to say I agree with this, though that is a column for another day.)

Still, any systemic solution has to come from the government, which is why I was pleased to discover that the F.D.I.C. chairwoman, Sheila Bair, and the Federal Reserve chairman, Ben Bernanke, are talking about setting up a new bank that will buy bad assets, and presumably create a market price for them — at long last. Once that happens, the downward spiral of the nation’s big banks might finally stop. It is something that needs help if we’re ever going to pull out of this awful recession we’re in. I look forward to your comments.