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MOHAMED EL-ERIAN ON THE BANKS

PIMCO’s co-chief is out with a great article on the new measures the U.S. will have to take to shore up the banking sector.

Over the next few weeks, the US government will be forced to do more. Further capital injections are likely to be supplemented by ambitious attempts to remove in one swoop the overhang of toxic assets. This can be done by aggregating them into a new government-supported institution that benefits from abundant and permanent capital. The institution would liquidate the toxic assets in a gradual and orderly fashion. This sensible approach is costly to the taxpayer and it can be sustained only if accompanied by meaningful steps to ensure that banks do not return to their bad habits – thereby accelerating the government-inspired march towards a “de-risked” and slimmed-down financial system. Governments will be more than strict regulators; they will be meddling partial owners.

The full article can be found here.