Tyler Cowen, writing in the NYT, does an outstanding job of, well, making you feel helpless and doomed, especially when he concludes that neither shoveling tons of money or nationalizing the banks is liable to work.
Instead, our best strategy may simply be to throw a few band-aids at the problem and hope it gets better on its own:
THE BAND-AID METHOD A third approach to reform is to try to muddle through, with fixes here and there. The hope is that banks return to solvency over a few years, as markets improve. The results, though, are likely to be a lot of limping along, continued extension of credit to weak and ineffective banks, and not much resolution.
But because we don’t have a few trillion dollars to spend on bank recapitalization — with or without nationalization — this may be the best that the American political system can do for now.
The outlook is bleak. Perhaps true and irrevocable insolvency will force the hand of the regulators to act more decisively. In the meantime, the banking system will be very hard to fix.
[h/t Kids Prefer Cheese]