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Jon In my mind, what's necessary is a massive injection of capital into the banks (taking big equity stakes obviously) and let them deal with the assets themselves, after all, they know them better than anyone. Once they have sufficient capital they'll be able to lend again and take realistic write-downs on their books. Unfortunately that doesn't seem to be the plan, and in the absence of any government plan then total panic will set in again in the market. I know that the week of LEH and AIG I was not the only one running around with their hair on fire, and the situation would be that bad again if people thought that no government action was coming, or worse, that government action was ineffective and they'd done everything they could.

So in conclusion, we need a bailout, not because its a good idea, but because it's the least bad idea we have. Not doing anything is a much worse idea - "sticking it to the bankers" although satisfying is pretty counterproductive. The bankers will be mildly inconvenienced, but Joe Sixpack in Oklahoma will lose his house and his pension....

You might be interested in my post "Baiout Done Right".

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