The Japanese Credit Solution

The Japanese experienced a banking and credit crisis back in the 1990's. Through trial and error, they found a way out of it:

"In Japan’s case, economists and former bankers say, credit began to flow freely again only after 2003, when regulators adopted a tough new policy of auditing banks and forcing weaker ones to raise new capital or accept a government takeover. Economists said the audits finally removed paralysis in credit markets by convincing bankers and investors that sudden failures were no longer a risk, and that the true extent of problems at banks and other companies was finally being revealed.

…….

Economists and former central bankers said another lesson from Japan’s experience was the importance of consistency. This became apparent in 2000, they said, during one of the bank’s more embarrassing episodes, when it raised interest rates, and lowered them back to zero a year later when the economy faltered.

Former Bank of Japan officials said they learned that bankers and investors would lend in difficult times only if they believed that rates would stay low for a long period, ensuring them adequate profits." [1]

It makes sense to me, because it focuses on what I see as the core problem: expectations concerning benefits.