Some leading economists say bank rescues should come with tougher conditions, and that the industry is short on capital to cover losses.
Pablo Martinez Monsivais/AP
Treasury Secretary Timothy Geithner argues that this experiment is better than any alternative, but doubts surfaced this week among congressional lawmakers and leading economists as he testified about his plan on Capitol Hill.
An overriding Treasury objective is to avoid repeating the economic distress that followed the bankruptcy of Lehman Brothers last fall. Secretary Geithner’s plan involves providing capital from taxpayers to at-risk banks, as well as using public-private partnerships to buy bad debts off their books.
This plan carries risks, however. The effort to patch up the banks this way could be very costly and slow – or it may falter for lack of funds, given the public mood of bailout fatigue.
“We want a fast [economic] recovery,” Mr. Kyle says. But that’s not likely to happen in an economy weighed down by bank losses, he says.
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