The financial crisis began in the credit markets, and eventually it will end there. But as the financial industry rounds out one of the most wrenching years in its history, bankers and policy makers are struggling to see the way out of this mess. Despite triage by Washington and trillions of dollars of taxpayers' money, credit is not flowing nearly as much as many had hoped.
The problem, as Mr. Bagehot observed, is trust -- or rather, the lack of it. Even after receiving millions, in some cases billions, of dollars from the government, banks are reluctant to lend money. Crucial parts of the financial system have stopped functioning. The exuberance of the boom, which led bankers to make loans to people who could not repay them, has given way to a seemingly intractable fear of making any loans at all.