Somehow this question never appears in an otherwise informative article that considers the possibility that the banking system is insolvent. The article concludes by suggesting that the most efficient solution may require that government take possession of the banks' bad assets. While this is true, the key question is whether this is done after the shareholders are wiped out, which would effectively be allowing the market to run its course, or whether the government buys the bad assets at above market prices. This is effectively a huge taxpayer subsidy to the banks' shareholders and their managers. This question is never discussed in the article.
--Dean Baker
