Arguments for:
- cheaper in the long run
- quicker recovery
- "The new banks will be more credible once they no longer have these liabilities on their back." create a market for the so-called 'toxic assets', and thus they can be realistically evaluated
- existing banks would be more competitive than they would be under a nationalization scheme, since existing banks will not have to compete with state-run entities
- confidence is already so low in the banking system, and stockholders have already been wiped out, that allowing the struggling banks to fail won't cause much more damage
Arguments against:
- widespread bank failures would wipe out shareholders and deposits in the short-term, thus reducing liquidity in the marketplace and further damaging the chances of economic recovery
- widespread bank failures would damage confidence across the board, like we saw after the failure of lehman brothers but on a larger scale.
- no solution should be one size fits all -- need to address each struggling bank with a unique solution. Maybe let some banks fail, but there may be others that really should be rescued.
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