I think that Yves fundamentally misunderstands what Citigroup is trying to do with the good/bad bank. The reason for this separation is so that you can treat the bad bank differently from the good bank. If you want to let the bad bank fail without killing the good bank, you can.

I think the big disagreement is whether or not the banks are solvent or not. If we are not looking at a second great depression, most banks *are* pretty clearly solvent, and so policy solutions based on the premise that they are not will do more harm than good.

Part of the reason that commercial banks are solvent now is even in the crazy period, most of their operations were still pretty tightly and effectively regulated so the situation with most commercial banks is not quite as bad as with the really crazy stuff.

Me: It’s difficult to see where Zhou is talking about expanding the role of the SDR in its present form. What Zhou is talking about is the “inclusion of currencies of all major economies” in the SDR, and allocation of SDRs “according to the current mix of forex reserves”, plus “wieghted by GDP”. (I’m not quoting exact words but very close) In its current form SDRs are just a different form of the dollar hegemony. The current SDRs are marked to a basket of USD, EUR and JPY, only. Given the recent demonstration that the Fed, ECB and Bank of Japan can come together to print currency in a co-ordinated way, all the more reason for Zhou not to accept this hegemony.
Zhou clearly states in his paper that “calculation-based” allocation of SDRs isn’t a good thing. The current system of quotas reflects the ‘traditional industrial countries’ wealth’ – a euphemism for the major participants in World War II – in the proportion that it was at at the end of World War II.

whether money market funds continue purchases can largely be answered by consideration of whether the Obama/Geithner plans are throwing good money after bad or truly solving the problem, the idea of”bad bank” /sale of distressed assets isn’t quite new and yves smith’s site has dealt with the problems of such a plan previously.

what do you think?

Nice work. Any color detailed history of the U.S.-China trade relationship? Does council have any documents or prior research on the main bullets of this unique/interesting relationship.

I’d like to review it…Thanks.