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The quicker we put failing banks into receivership — temporary nationalisation if you will — the quicker they can be restructured to put the working pieces back into play, at the least cost to the taxpayer. Regretfully, but quite correctly, the bank’s shareholders will, and should, lose their shirts. Because unless they suffer the pain of their bad investments banks will not regulate themselves from behaving badly again — and without a hefty amount of self regulation banks will not be able to attract much capital in the future. Out of that suffering will come some good. Any other way rewards the greedy banks, their unquestioning investors and their complacent employees at the expense of the long suffering taxpayer, it puts the country deeper into debt and insures an undisciplined industry from the moral hazard of their own mistakes. Unacceptable.

Bail outs to the banks, so far, appear to have back-stopped investor losses and funded executive bonuses — without stemming job losses nor keeping responsible borrowers in their homes, nor has it enabled banks to continue advancing credit to viable businesses.

Capital has been siphoned out of the system with what, in my opinion, amounts to massive investment bank embezzlement — known to some as “the bezzel”. We should not be trying to re-inflate that bubble or even fan the dying embers of a banking system which just burnt down. Pour cold water on it. Those closest to the fire will be most badly burned but put out the damn fire now!

Under the curatorship of bankruptcy: Take over ailing banks and insurance companies. Keep the doors open. Zero out shareholder value. Break all employee and labour contracts (no more bonuses to losers). Keep debtors at bay. Recover assets. Claw back bonuses and dividends paid on bogus profits. Allow the Fed to recapitalise viable financial institutions. Put people and the banking system back to work. When the business is sound, sell the bank off to investors, recover taxpayer money — with a little bit of profit to offset the risk.

I’m not advocating nationalising the banks which invites government interference. Bankruptcy is the long established mechanism for the orderly collapse of ailing businesses whose debts are insurmountable.

For homeowners who took out responsible loans, who can still afford their payments, but now find their homes worth less than the purchase price: Re-finance these loans at current low fixed rates — at minimal closing fees and taxes (this should not become another fee scam for mortgage brokers).

For homeowners who took out loans they could not afford or bet on their property values increasing to cover their shortfalls, regretfully, you lose. Moral hazard requires that you alone pay for your mistake, not your neighbours.

Suggested reading New York Times Op-Ed Columnist Paul Krugman’s “Banking on the Brink” | Moneyweb article by asset manager Piet Viljoen and Charlie Munger.Undisclosed embezzlement | “” Founder and retired CEO of Vanguard John C. Bogle’s prescient book The Battle for the Soul of Capitalism | Wired’s Recipe for Disaster: The Formula That Killed Wall Street

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