Yes, banks are going through tough times. The loss of shareholder value in Fannie and Freddie adds to losses from exposure to the housing market and consumer debt. The settling of the credit default swaps on the two mortgage giants may also be messy. Raising fresh capital is also increasingly difficult. This is not surprising, however, given how bad news has kept dribbling out.

Yet a sudden failure, such as that of Bear Stearns in March, seems unlikely, since liquidity is assured by the Federal Reserve's decision to open the discount window to investment banks. This is buying damaged institutions time needed to come up with a private sector solution. That is what they must seek.

Apart from offering short-term liquidity, the Fed and the Treasury should remain on the sidelines. It is not obvious how they could help a bank such as Lehman, other than by injecting equity. It is even less obvious why they should.