The problem, apparently, is that banks won't lend to each other and that this will cause the flow of credit to business and individuals to 'freeze up'.
OK, then. If the banks won't provide the credit to keep businesses ticking over, let the government do it directly.
Instead of government giving the banks increasingly large amounts of money to get the lending process started again, and failing to have any effect, let the government set up its own channels for distributing mortgages, credit lines etc.
With the Internet, it's simple to set up a banking web-site with all the facilities to take deposits, vet requests for loans, and reach out to people who need financial help.
The Post Office system is also there to help if people need a physical entity with which to interact.
To instil trust, this 'Good Bank' should be called The Bank of England. It would, in effect, be the commercial, High Street, neighbourhood banking arm of The Bank of England.
Of course the existing banks will scream and shout, but now is not the time to listen to the existing banks.
We've fawned on them for far too long.
TOMORROW MORNING: TEN FASTEST GROWING FPD APPLICATIONS
Yes, at the moment we are being bullied by the banks, whoe are behaving like a union of lorry drivers on a go-slow down the motorway!!
The whole system is being held in this state until the banks get what they expect from governments.
As you point out, let's use our taxpayers money wisely to set up a new banking system! - rather than the current "gilding the turd" approach so far - which is throwing good money after bad.
Another alternative is to switch over to credit unions.
Great comment. Thanks. Another solution emerged yesterday - Tesco's! They are planning to offer current accounts and mortgages. Yesterday, Tesco's finance director, Andrew Higginson, said "Customers are looking for somebody they can trust. People are genuinely worried about where to put their savings. There is an opportunity for a challenger brand, like Tesco."
I could go for that.
I agree with you, the current lot of banks are deliberately gumming up the system while peddling alarmist propaganda, in order to push the government into bailing them out.