Banks, which typically hold only a fraction of deposits as cash reserves, must liquidate loans in order to raise the required cash.
With such a permanent, massive infusion of money, the process of liquidating unresuscitative loans could be undertaken in earnest, without bringing down the whole financial system.
The cost of liquidating the loan exceeded the proceeds.
Another buy is Thailand, where new Prime Minister Thaksin Shinawatra recently set up a special government trust to help banks liquidate bad loans and raised interest rates to attract foreign capital, which Templeton says should let the Thais achieve a projected 4% economic growth next year.
The Federal Reserve should provide a credit facility to commercial real estate owners as a lender of last resort with the government obtaining an equity interest (but not control) over the real estate in order to avoid the real estate from being dumped on the market, thereby further depressing values, which will also provide lenders with a way to liquidate their loans.
* Mitsui Bank Ltd., Tokyo, said it had reached basic agreement with Chase Manhattan Trust and Banking Co. (Japan) Ltd., for a deal aimed at liquidating its housing loans and several other bank loans.
Banks would liquidate their loan portfolios and raise deposit rates in order to maximise their excess reserves.
On paper at least, banks had assets that more than covered their commitments to their creditors, but they were unable to liquidate these loan packages for cash when these commitments came due.
But they neglected to point out that their get-tough approach has been tried twice before: in the period from 1929-32, when Treasury Secretary Andrew Mellon's advice to bankers burdened with bad loans was "liquidate, liquidate"; and just a few weeks ago, when Mellon's successor Henry Paulson and Federal Reserve chairman Ben Bernanke chose to let Lehman Brothers go bankrupt.
The bank would be liquidated as the loans are repaid or written off.
