A spat recently broke at a panel discussion of the ‘World Economic Forum in Davos’, Switzerland between the Nobel laureate Joseph Stiglitz and Angel Gurria who is the head of the ‘Organization for Economic Cooperation and Development’.

Stiglitz, who is a professor at Columbia University in New York and a former adviser to President Bill Clinton had said that any decision by President Barack Obama to establish a so-called ‘bad bank’ to help rid financial companies of toxic assets risked increasing the national debt and added that the intended plan would leave taxpayers paying for years of excess lending by banks and would also deprive the government of money that could be better spent by propping up Social Security.

“That amounts to swapping taxpayers’ cash for trash and you shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage”, he said.

Angel Gurria who was Mexico’s former finance minister replied that a ‘bad bank’ is necessary if lending is to resume, “I agree about the moral, ethical fallout, but you’ve got to face the music and someone has to take the loss. It’s the only way to jumpstart the economy”.

The Obama administration’s idea of buying the illiquid assets that are currently clogging banks’ balance sheets that are thought to be what is preventing them from lending is increasingly gaining criticism, as is global impatience with U.S. fiscal inaction.

George Soros said in an interview that “it’s not the measure that would turn the situation around and enable banks to lend”.

John Monks, who is the general secretary of the ‘European Trade Union Confederation’ said, “governments are getting close to straining the patience of the public and voters by repeatedly extending lifelines to banks”.

Gloria Arroyo who is the President of the Philippines urged Obama to act quickly, “We want Americans to do something. We can discuss what to do but the worst thing is to do nothing”.

A report just out from the International Monetary Fund states, “Bank losses worldwide from toxic U.S. originated assets may double to $2.2 trillion”.

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