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It is clear now that there is not enough money in the financial system.

For banks it is a question of solvency.

For the populations of the G8 it is a question of liquidity as banks are beginning to look more than usually parsimonious in relation to them.

If the money is not within the system they cannot earn it and cannot spent it.

This credit crunch can coexist with inflation as there is worldwide competition for raw materials and corporations with monopoly or quasi-monopoly pricing power are finding it unnecessary to radically cut prices to maintain market share.

With the probable exception of Canada, all G8 members appear to have some under-capitalized banks.

Estimates of the capital that British banks may need to raise to meet Basel III range up to £200bn.

Though this figure appears too high, it is very unlikely, given the size of the U.K. economy, that this sum can be found, with a few years to spare, by charging, or overcharging, the customer.

Other banks, in the eurozone, have more pressing and probably greater needs to raise fresh capital.

The time for banks to raise new capital in the markets on anything other than unfavourable terms has passed.

Earlier quantitative easing has not met the expectations placed upon it.

The net effect appears to have been to monetize government expenditure, keeping government borrowing costs down, and bolstering bank reserves, without greatly increasing bank lending to get more money into the system.

One has to ask would not such funds be better used to recapitalize banks so that they can take write-offs early and lend, not on the basis of having too much of some types of loan on their books preventing them taking on more of the same, but in relation to what would be sound lending now?

To recapitalize their banks, the G8 governments might in concert offer substantial new capital to nearly all their banks at a discount of 10-20% to their prevailing equity valuations.

They would doubtless also extract a political price varying from country to country.

In market terms, this would be a good deal for banks. They could also decide how much new capital to accept, if any.

There would be a small reputational cost in taking up the offer but also a cost in not doing so because rivals would be better capitalized.

For any bank taking up the offer there would be equity dilution but higher rated banks would be getting a better deal.

Since relatively few banks want a government as a major shareholder, this is where Father Christmas must play a role.

Each country would place its newly acquired equity and bonds from this refinancing in a quoted holding company and issue shares (stocks) in it to every citizen equally, including children. (Or simply distribute bank shares to every citizen).

Arrangements would be made for them to be able to sell their individual holdings at any time on the open market. It would be kept simple to help those unfamiliar with shares. Selling would not be discouraged as the flow of cash into economies would help reflate them.

Trust arrangements could be put in place for children until they came of age.

Since quantitative easing is likely to create inflation, only an equal distribution of material benefit will fairly compensate a domestic population for it.

The stimulus that this double refinancing - making use of the same money twice in different forms - would bring about could well end the global downturn.

Banks could get on and write down their holdings of distressed sovereign debt and other parts of their loan books.

Currency depreciation would also be a likely consequence but if most G8 countries participated, consequential movements in their currencies relative to one another would be reduced.

Many countries outside the G8 would receive a boost to demand but their holdings of G8 assets might be devalued.

The main conceptual difficulties relate to the eurozone.

If the European Central Bank is permitted to create money for the purposes of this refinancing then the scheme ought to be extended beyond the G8 members to include all European Union members if they wish to participate.

If the ECB were not so permitted then France, Germany and Italy would have to find the sums to refinance their banks by other means. This is part of a problem that faces the eurozone and the European Union anyway.

The precedent for the widespread distribution of bank shares already exists.

Britain used to have many building societies that used to finance mortgage loans and it still has a few.

People depositing money with them could either be depositors or shareholders. Depositors ranked higher up in the list of creditors and received a lower rate of interest.

Shareholders paid nothing to be shareholders, received higher interest, and might have had to wait longer to withdraw their money had there been crises.

They nominally owned the societies but never expected a financial reward for doing so other than the receipt of higher interest.

Then building societies began to take advantage of a new legislative framework to convert to banks.

The converting societies gave their shareholders tradeable shares, or rights to subscribe for shares at a discount, or both, as they became quoted banks.

This was, in practice, a distribution of free or discounted equity to millions of people.

More than once, the money from the sale of such shares helped prop up demand in the economy in difficult years.

Any scheme coordinated across the G8 will face political difficulties but central banks find it easier to conjure up new money than it is for governments to increase deficits, even if the latter were desirable.

The real costs will come if the financial system cannot be stopped from destroying money by hoarding it and no broad rescue scheme is put in place.

Some banks or more banks will then fail in 2012.

The financial terms for the rescue of individual banks will be higher. Both shareholders and bondholders will, this time, unquestionably have to take write-downs. The political price for rescues will necessarily be higher.

Whether governments take stakes in failed banks or not, electoral approval for individual rescues is likely to be scant unless corresponding benefits are handed to electors.

Germany has a particular problem with any scheme that might be inflationary. During the Weimar Republic the officials creating currency did not understand money. It is true that today many in universal banks do not understand money, and others less visible to the public too, but the situation is different. The eurozone now has insufficient money to rescue itself without the ECB creating it.

The participation of the G8 in a broader scheme of refinancing could save the day.