Options for Resolving the ‘Bad-Asset Problem’
Thinking about the bad-asset problem, I recognised to my surprise that there were long-term contracts in state socialism. In particular, a banking system existed collecting private households’ savings and lending money to firms. However, money assets and liabilities did not reflect market relations. Savings banks, being branches of the East German Staatsbank, were not competing for deposits. On the other hand, the government controlled investment and allocated credits of firms according to devices of the plan.
KeywordsCentral Bank Transition Economy Public Debt State Owned Enterprise Private Household
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