He just says a bad bank has to be implemented properly, and that this will necessarily involve the State seizing (temporary) control of all the banks in order to sort out the mess properly - as was done in the Savings & Loan situation in 80s America, or in Sweden & Finland.
He’s just saying some of the current notions being floated in the US are political bastardisations of the (previously tried and tested and successful) Bad Bank model, and that these ideological bastardisations won’t work properly.
What Krugman demolishes is the idea of the bad bank working without nationalising the failing banks. He demolishes the original TARP (Troubled Assets Relief Program) which this proposal (and some of the proposals for Anglo) effectively are. They are a rehash of the failed logic of setting a false market clearing price without regard to the market.
The genuine “bad bank”/“good bank” concept is still the only game in town.
Will the real bad bank please stand up?
edit: dang. Beaten by Sidewinder again. You didn’t realise we were twins, did you? I’m the older, slower, stupider one, but I got the paid schooling in the family…
Sorry guys, I was typing too fast while making curry – I should have said “Paul Krugman demolishes the idea of the type of “bad bank” that people were suggesting for Anglo over the weekend.” You’re right of course that it’s not a bad idea per se.