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Economic problems continue to plague banking industry

An article in The Wall Street Journal (Jan. 17) reports that plans are underway to build another program designed to entice private capital to return to the financial services system. There's also talk about creating a Resolution Trust-like entity to buy up “bad” financial assets in an effort to clear up bank balance sheets and get them lending again. This is something that experts like former Comptroller of the Currency Eugene Ludwig have been suggesting for some time.

How such a “bank” would work – not to mention where it would get its capital – is not clear, but the essence of it's mission would be to get rapidly deteriorating assets off the balance sheets of the nation's larger financial institutions and put some sort of government guarantee behind selected ones that remain.

According to the Journal, deterioration of bank assets is outpacing the government's rescue efforts. Although residential real estate assets are at the heart of what initially caused the nation's economic slowdown, those problems have bubbled up in other areas that Secretary of the Treasury Henry Paulson has mentioned before on a number of occasions: commercial real estate investments; car loans and indirect financing; credit-card debt; and other kinds of consumer finance that have taken a hit with the faltering economy.

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