Removing Bad Assets Good Place to Start

By Joe Adler

While the Treasury Department is expected to unveil more details Wednesday on stress tests for the largest institutions, the verdict on that plan is already in — the tests will do little to restore confidence in banks, and may undermine it further. Instead, a chorus of observers said the Treasury needs to concentrate on other solutions that could have a practical impact. First on that list: removing bad assets from banks’ books, no matter the cost. “You have to clean up the balance sheets,” said Michael Bleier, a former Federal Reserve Board lawyer who is now a lawyer at Reed Smith. “That is pretty much a sine qua non for getting people to feel comfortable.” At this point, most sources said government officials have little to lose by taking decisive action. “We can’t get past the politics,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. “The Obama administration will just have to decide what policy it thinks is best and make the politics work for them. If there were a good answer — an easy answer — Secretary Paulson would have taken it.”

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