1. Liquidity.
At this point it is probably the only thing the US regulatory authorities know how to cope with, “thanks” to the Great depression of 1929.
2. Insolvency.
That is what the Great recession of 2008 (that is how it is getting fashionable to call it, although given what it is happening in Europe we might need to change that) should have teach us, but I am not sure it will given that we felt it as recession and not a depression.
Institutions to cope with default are what we need: Too Bigh to Fail is neither fair nor efficient.
Suggested Readings:
Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis (Hoover Institution Press Publications). John B Taylor.
Financial regulation: Can we avoid another great recession? John Van Reenen
(http://www.voxeu.org/index.php?q=node/4988. May 4, 2010)
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