It all started with the financial systems greed and teh general human tendency to let the things get worst before thinking of correcting it. Every body seems to be blaming the investment banks for the dire situation of liquidity crunch and economic stagnancy. Now the US Govt is trying to get passed the $700 bn bail out bill. But i think it might just turn out to be a temporary solution if not conditional. the Govt seems to be just throwing away teh tax payers valuable money in order to clean up the mess created by an opportunistics segment of GOP. It is highly unlikely that the govt will be able to sell the toxic bonds once the market gets better and even if it does that would be like triggering off another financial mess.
Instead the same solution that teh govt of Sweden( or was it spain?? :)) had come up with can be applied here too though the enormity of the current situation is incomparable to that in 1990s. Back then the govt of Spain had arranged for a bail out in similar situation which amounted to around 4% of teh Country's . The Govt had got significant amount of equity in return for the bail out. This atleast gives the govt an opportunity to get back teh money it is extending out. Even now US Govt can force the banks that it is trying to salvage to give out some % of their equity. this will give the govt a stake in the future of the banks rather than just help them out when situations get worse. This might help to deter banks relying on Govt help when things worse.
One more thing that govt can probably do in future is to have representaion in the board of teh company in order to increase teh accountability and ensure that the banks do not take advantage of teh loop holes in regulation.
