ABSTRACT
In an atmosphere of as much uncertainty as surrounds the BIF's operational solvency, economic policy inevitably charts a course between what statisticians call "type 1" and "type 2" errors. It either reflects a course on which, if errors result, costs are higher than expected or it reflects a course on which, if errors result, costs are lower than expected. Throughout the entire savings and loan debacle, the former course has been chosen at every turn. The denial, understatement, and forbearance amply described in this book about the banking crisis indicate that the same mistakes are being made in the banking crisis. The financing recommendations that we make strongly urge a course that would entail a more rigorous evaluation of deteriorated banks, more realistic estimates of the BIF's obligations, and more rigorous estimates of the banking industry's ability to fund further recapitalization of the BIF than government officials have provided. We believe that is the low-cost approach.
