Makes a lot of sense to me – I also suspect you will like the GG book, as I found his writing useful when coming to my own personal set of views!

FWIW, my view is that most Wall St and European banks were insolvent by July 2007 if you applied a true mark to market to their balance sheets, so the TAF was not material in influencing that fact one way or the other.

Central banks should focus on keeping NGDP expectations stable and let bad banks go to the wall. There should be a mechanism in every country that creates a framework around putting bad banks into restructuring (like the FDIC in America). If necessary, the government can inject equity into a bank for a while. If you must have deposit insurance, you should force banks to hold more equity, and my that I mean 20% or more, like they did in the 1920s. As per Charles Calomiris, banks will threaten to reduce lending, so you will have to compel them to issue more equity to keep the balance sheet the same size. The result would be boring, stable, banks with single digit ROE, which will be better for almost everyone except the CEOs of the banks. You won’t do away with booms and busts entirely, but you will remove a major transmission mechanism.

Reminds me, I have to read Gary Gorton’s new book…