Some of Mr. Obama\u2019s advisers have asked who the government would get to run the banks. Many of the most experienced executives are tainted by the decisions they made during the age of excess. And how would the government attract the best talent if it demanded that they take minimal pay \u201d\u201d a political reality in the current environment?<\/p>\n
Another option is for the government to buy the banks\u2019 most toxic assets either through a giant fund, or, more likely, a federally supported bad bank designed to buy up troubled investments. But in that case, taxpayers might well be the losers: They would have all of the banks\u2019 worst assets and none of their performing loans. And unless a deal is worked out to take a larger share of the banks whose bad loans are shuffled off to the government, the taxpayers would not have the chance to benefit by selling the shares back to private investors.<\/p>\n
Moreover, cleaning up the banks\u2019 bad assets, without extracting a heavy price for the bank managers, shareholders and their lenders, is exactly what Mr. Summers and Mr. Geithner warned against during the Asian financial crisis.<\/p>\n
\u201cWe told the Asians that they had to be willing to let banks and companies fail,\u201d\u009d said Jeffrey Garten, a professor at the Yale School of Management and a top official in the Clinton administration. \u201cWe warned that there was great moral hazard if governments just bailed them out.\u201d\u009d<\/p>\n
\u201cAnd now,\u201d\u009d he said, \u201cwe are doing the polar opposite of our advice.\u201d\u009d<\/p>\n