MARKETS As newspaper headlines are full of stories about more forced capital injections by governments into leading American and British banks, it has surely become time to end the present ad hoc approach to the intensifying banking crisis.
In the US and Britain most of the big banks have now become a weird hybrid of public and private sector, given growing government equity stakes in these banks. This raises the issue of the deeply flawed policy response to the crisis. This is that if the authorities are not prepared to let insolvent financial institutions go bust, which would be the quickest, most effective way to correct excesses, as the Lehman precedent demonstrates, the next best way is to nationalise the, in effect bust, banks outright. This remains the opposite of what is happening in the US and the other country most vulnerable to an imploding financial services sector, namely Britain. Rather, what is happening is nationalisation by stealth.
