The Wikipedia article on the crisis grows by the day. The FT is constantly filled with news about the latest manifestation of the collapse in demand.
What worries me is that at times of crisis we look to strong men to lead us out of the mess. Arnold Kling in his recent podcast on Econtalk made the point that actually there is no economic theory to guide the likes of Hank Paulson, Ben Bernanke, Mervyn King, Gordon Brown et al. and that they really are making it up as they go along. Although it seems reasonable to preserve the financial system to allow the essential function of allocating capital and facilitating funds transfer and avoid the heavy costs of unwinding complex derivatives contracts entered into by failed investment banks, it is not clear that a transfer of huge sums from future taxpayers to the owners (and increasingly) to the managers of the banks is such a smart move in the long run.
The accepted wisdom in the 60's when we were faced with inflation was strong action. Similarly the problems of de-industrialisation in the UK at least, in the 70's, were addressed by industrial policy. The Great Depression lead to the setting up of a lot of institutions, including agricultural subsidies, Fannie Mae and Fanny Mac, and a mass of government intervention into private and public life that has never been reversed.
Looking at the home front, I am incandescent with rage that the utterly useless UK banks, which have treated their customers with undisguised contempt, and pursued a policy of ruthlessly reducing the pay (and therefore the quality) of their staff for years. I am indebted to Prof Robert Shaw for explaining how this works in his letter to the FT today.
It seems to me that what we need is not more regulation of banks, or indeed more subsidies, but more competition. The key to that is reducing the huge barriers to entry that still exist in running a bank in the UK.
