who would have thought it!

Let's start with one for one. Run that for a cycle and see how it plays out.

FoFP

But if the fraction is one, banks wouldn't be able to lend at all, they'd have to keep 100% of deposits in their coffers. So they couldn't pay interest either. Then the only point in making deposits would be folk using banks as a safekeeping and money transfer service (for which banks would charge a fee). Is that what you're advocating?

The problem seems to be that because of the ways banks reward staff there's been a large build up of risk which regulators and government have ignored. Now the government has had to step in. The government could throw money at the banks but if they did it would largely find it's way to their shareholders. The other alternative is to say the banking system has grown in such away that it is not performing how society needs it to perform. The government has had to step in and the only way to make it work is to run the banks. It's no good government telling banks what they should do. It's no good the Bank of England reducing bank rate. The government has to make executive decisions within the banks. If regulators and government had been doing their job earlier we wouldn't be in this mess. Eventually government should get to the stage where they can get out of direct banking and rely on regulation.

Everybody says house prices are too high and then they're saying house prices are too low. Everybody says there's too much borrowing and now they're saying there's not enough borrowing. As usual the real problem is over reaction.

Maybe if bank systems were designed to produce information immediately to regulators and the regulators could assign their own risk profiles then they could advise the banks which seem to be acting too recklessly with certain products. Government could also supervise the regulators. Presently, the culture of incompetence in large organisations means that it will be a long time before we return to anything like normality. The buffoons will concentrate on correcting one problem and ignore the adverse effects of their solution.

I doubt government taking over the banks is going to help. They're not even good at government finances.

Then there's the aspect of closing the stable door after the horse has bolted. The credit bubble has burst. The problem was too much debt. Now the government is afraid of the country going cold turkey on debt and what it'd mean if we got the collective shakes. So they're going to borrow on our behalf and lots of it. Quite how borrowing our way out of debt is supposed to work in theory I don't understand, but it's irrelevent anyway because it won't work at all.

There might be an argument for more or better regulation of financial markets. On the other hand, there might be a better argument for actually enforcing the regulation that's already in place. As in every other bubble, the authorities got sucked into the hype that a new paradigm had been created and boom and bust had indeed been abolished. They let the speculators and peculators have their way unimpeded, and now we must pick up the corpses.

Meanwhile Brown is running around like some demented Chicken Lickle screaming that we must rebuild our institutions lest the sky fall again. Best not forget that Fannie Mae, the institution at the centre of the credit bubble and Ground Zero for the bust, were created in precisely these circumstances at exactly this point of the previous cycle of bubble and bust. What was created to ensure "this must never happen again" became the very nexus of the debt which guaranteed a repeat. In this case the long road to perdition was paved with the very best of intentions. Will we be able to recognise it if Brown badgers and bullies the rest of the world to create the instruments of our ruin in the Crash of 2080? If we judge Brown and his ilk by only the goodness of their intentions, we do so at our peril.

FoFP