How much are the toxic assets worth? A bit of logic and a straightforward application of the Black-Scholes formula suggests that if current expectations of house price declines are right, securities built on subprime mortgages might be close to worthless. The key is that US mortgages are ‘no recourse’ loans, i.e. debtors can walk away from the mortgage without being held personally liable, a feature that gives homeowners a virtual put option.

Bernanke and Paulson's Troubled Assets Relief Program (TARP) is not perfect, but it is a good start. Both aspects of the problem – assets’ illiquidity and shortage of capital – should be addressed in sequence. By removing troubled assets from the banks’ books, TARP would remove uncertainty. This will encourage private injections of capital and provide better information for public intervention if they prove necessary.

The Paulson Plan addresses market illiquidity for toxic assets but the real problem is a lack of bank capital and the risk of widespread insolvency. Fixing this requires a government injection of new bank capital or a forced conversion of bank debt into equity. This column argues against the former as it would further socialise the US financial system. The Package needs some work, but Congress must stop its infantile posturing and act soon.

Here one of the world’s leading international economists, a former member of Clinton’s Council of Economic Advisors, comments on the growing consensus that the Paulson Plan has got the wrong end of the stick.

The crisis solution depends upon its causes. Here one of the world’s leading international macroeconomists explains how the world got into this mess. This is the ‘Director’s cut’ of his 18 September 2008 column on Project Syndicate.

This column, posted 19 September on an FT forum, suggests a better way of ending the financial crisis. Instead of buying toxic assets, the US government should buy preferred stock capital in ailing banks that could raise matching private sector equity. This would avoid the intractable problems of how the government should value the toxic assets and directly address the banks' immediate problem – a lack of bank capital.

The world’s bankers created a reckless mix of lending and securitisation that exploded in their faces last year; they’ve stonewalled since. It would be criminal to bail them out, but spilling blood for its own sake is foolish. Here one of the world’s leading macroeconomists explains how the ‘Paulson Package’, history’s largest bet, might work and might not cost taxpayers too much. It’s too early to know which label to apply: “bailout” or “shrewd cleansing operation”.

This weekend’s decisions will shape the type of capitalism we live with for the next fifty years. Here one of the world’s leading financial scholars, Chicago Business School Professor Luigi Zingales, argues that bailing out the financial system with taxpayers’ money is wrong. He discusses an alternative – forced debt-for-equity swap or debt-forgiveness.

The radical moves in the US have direct implications for European banks and indirect implications for European governments. This column discusses the likely channels and notes that several European banks are both too big to fail and may be too big to be saved by their national governments alone.

The recent credit crisis started as a credit shock and then rapidly promulgated in the form of market and funding illiquidity before inducing solvency problems at some financial institutions. This column presents empirical evidence mapping the transmission channels of the crisis.