How soon economic recovery will come to the US is unknown. What is certain, however, is that the US will not manage sustainable growth without a functioning financial system. But the current array of bank rescue policies does not address the central fact that the financial system, as a whole, is undercapitalised. Fixing it will require a great deal more public money.

The US government recapitalised a string of banks in the autumn of 2008. With the explosion of Lehman Brothers still ringing in their ears, this reassured investors that the financial system was not going to collapse and that US banks had sufficient capital to bear the consequences of their previous mistakes.