White Paper on All the Options for Managing a Systemic Bank Crisis

The on-going financial crisis results not from a cyclical or managerial failure, but from a structural one. Part of the evidence for this assertion is that there have already been more than 96 other major banking crises over the past 20 years, and that such crashes have happened even under very different regulatory systems as well as, at different stages of economic development. Better solutions are urgently needed because the last time we faced a breakdown of this scope, the Great Depression of the 1930s, ended up in a wave of fascism, and World War II. So far, however, only conventional solutions are being applied – nationalization of the problem assets (as in the original Paulson bailout) or nationalization of the banks (as in Europe) – only deal with the symptoms, not the systemic cause of today’s banking crisis. Similarly, the financial reregulation that will be on everybody’s political agenda will, at best, reduce the frequency of such crises, but not avoid their re-occurrence.