Bailing out the banks' customers and their customers/employees
I tend to think that the UK proposals with Tier 1 capital for the banks are better than the USA proposals which involve the government buying "toxic" debt. Although some of the "toxic" debt may indeed be quite sweet and undervalued what the USA proposals do is to reward the shareholders.
What the UK proposals do is to underpin the banks so that the government gets its money back, but the shareholders and management only win out once stability returns and the consequences of their decisionmaking is recognised.
To that extent they do not bail out the banks, but instead bail out the banks' customers.
For those that argue for insolvency they need merely to look at what has happened with IceSave where the bank accounts have been frozen. Imagine what would happen if a big bank's accounts got frozen. People's wages would stop being paid and noone would be able to pay for anything until the administration had made some progress.
To that extent this bails out the banks' customers employees, customers and suppliers. The shareholders of the bank still have to cope with the final outcome of decisionmaking whatever that may be.
What we need now also is a cut in interest rates.