Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

The US government is buying bad debt for $700 billion. Now Washington is asking other countries to jump in and help, too, but the Germans are bowing out. Believing that the rescue package sends the wrong signal, experts from the country's leading economics think tanks argue it's the right call.

Still, the financial crisis has already reached German shores, and banks here have had to announce write-downs of nearly €40 billion ($58.5 billion). "German banks are already sufficiently involved in the calamity," says Stefan Kooths of the German Institute for Economic Research (DIW) in Berlin. Either way, experts estimate that half of America's bad loans were sold abroad -- and a large part of that was assumed by Germans. And now the money is gone. "There's no reason why Germany should have to bear even more burdens," says Kooths.

Instead of standing in the way of a market shakeout with a cash injection worth billions, Dierich argues the Americans should find another way for the banks to get ahold of some fresh capital -- by putting up new shares for sale to secure new funding, for example. In the current crisis climate, though, no bank is going to voluntarily issue new shares because that would signal to the market that the institution is facing difficulties.

Accordingly, IWH's Dietrich suggests that the US government require all banks to issue stocks and that they be required to back up the issuance with a set amount of capital. Under these circumstances, Dietrich believes that investors would buy shares of the banks that they consider healthy and that the market would make it crystal clear which banks these were. And the institutions that are having a rough time because they can't find investors will go broke. "That step would send the right signal to the market," Dietrich says, adding that those who were performing the worst wouldn't be rewarded in such as situation -- as they are being now.