The government will try to reignite securitised lending through a new public-private investment fund for toxic assets and by expanding existing Fed facilities for consumer lending. This could revive non-bank credit markets independently of whether banks are put back on a sound footing.

However, banks cannot remain in their current dysfunctional state. Today some banks are solvent and others are not, but nobody knows which is which. Banks must come clean about their losses immediately, and then be adequately recapitalised, lest all banks are perceived to be insolvent. Otherwise interbank lending will not thaw, and capital infusions will not raise banks' lending.

Mr Geithner knows this. A further plank of his plan is to require banks to undergo a “stress test” to make “their balance sheets cleaner and stronger”. But any transfer of capital to banks from the public purse must come with the necessary strings attached to realise their public purpose. Taxpayers must be compensated fairly for their investment, since taking loss-bearing assets off banks' balance sheets at terms more generous than the market price amounts to an unwarranted gift to the banks.