Govts should put wounded lenders out of their misery

The economy checked into the hospital suffering from a serious housing crisis. As doctors dealing with the patient administered treatments, other more troubling ailments appeared.

Now it is vital to focus on the liquidity-crisis fever in a comprehensive manner to prevent the disease from killing the patient. So far the treatments have been too narrow. Failure to deal with the fundamental asset issue will mean the patient might stay in the hospital for many years.

Waning confidence in the banking and payment systems might lead to the type of money destruction that was a cause of the Great Depression. The policy moves by the government - the purchase of troubled assets, the injection of capital into large banks and the direct purchase of commercial paper by the Federal Reserve - don't address the issue of confidence that money put in a bank or money-market fund is safe.