The new thinking should put people first, and banks shareholders and bondholders second.

Government debt must be restructured. Bank debts have to be converted into equity and, where banks are insolvent, written off.

Before 2007, banks enjoyed high returns and soaring stock prices.

It is no coincidence that bank stocks were hit hardest in the recent financial crash.

Bank shares in particular are rebounding, and some banks have even succeeded in repaying at least part of their government provided capital.

And you're saying, wait Sal, that doesn't make sense, we all know that the stock market is a wild ride, especially banking stocks.

Central banks should put a floor under the value of a country s banking system by committing to buy shares in an index fund of bank stocks at a predetermined price.

Having access to insured credit, banks shareholders find it irresistible to borrow excessively.

Why does any investment manager buy the stocks of banks that pay out very large portions of their earnings to their employees?

This would enable central banks to hold instruments that behave like a widely diversified global equity portfolio.

In fact, bank stock prices might drop, and it is entirely possible that compensation and bonuses would be curtailed, at least in the short term.

These debentures should be designed to create a strong incentive for bank managers and shareholders to issue equity rather than suffer conversion.

Stocks and bonds?

On shares.

Bank bonds could also be reduced and converted into equity, which would both avert a government takeover of banks and prevent socialization of bank losses from causing a sovereign debt crisis.

Furthermore, many bank shareholders have suffered from the disruption in lending, either directly or via their businesses or employers.

Doubts about their stability are at the center of the storm. It is no coincidence that bank stocks were hit hardest in the recent financial crash.

Rather than imposing the costs of the ECB s and EFSF s losses on European taxpayers, the banks creditors could give up some of their claims in exchange for receiving shares from the banks owners.

You call them stock, or stock options, derivatives, mortgage backed securities.

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So let's call that market equity.

Five you'll get.

There has been some recovery in prices for bank shares from the lows of 2008, of course, but that rally faltered recently.

Immediately after this declaration, however, prices of European bank stocks plunged, and Dijsselbloem was accused by many (including some of his colleagues) of having poured oil on a burning fire.

Banning payouts to shareholders and requiring banks to raise funds by selling new shares would bolster them without restricting their ability to lend.

If banks and financial institutions find it difficult to recapitalize (i.e., issue new equity), it is because investors are uncertain about the value of the assets in their portfolios and do not want to overpay. Will government do better at valuing those assets?

Higher and pro cyclical equity capital requirements on banks, combined with a requirement to raise contingent long term debt debt that converts into equity in a crisis is a better way forward.

Miscellaneous Symbols and Arrows

Arrows for Skipped Calls

When a bank s capital falls below a pre specified limit, its cocos automatically convert from debt to equity at a fraction of their previous price.

In 1992, Sweden s central bank, the Riksbank, allowed private bank equity holders to be wiped out, but it rescued depositors and creditors by buying up risky assets of failing institutions.

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Investments by type (market value)

At least I'm picking something that everybody would agree (most everybody) it's an exciting choice.

The market value equity of 1.5 billion.

Doesn't this remind you of a great stock program?

The earnings rate went down this year.

The Council decided to revise the standardized rules for the ownership and exchange of shares in order to allow the citizens of Council States to own and transfer the shares of joint stock companies operating in various economic areas, with the exception of banks, currency exchanges and insurance companies.

Banks

The banks.

Banking!

In 1992, Sweden s central bank, the Riksbank, allowed private bank equity holders to be wiped out, but it rescued depositors and creditors by buying up risky assets of failing institutions. Sweden recovered.