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The current approach to solving the banking crisis is to put more government money into banks. The problem with this approach is that it creates fear of government meddling in the operational and financial decisions of the banking sector. Banks can only survive if they are run by managers and boards who sincerely believe their goal is to maximise shareholder value. This requires managers who are willing to maximise shareholder value and are capable of doing so. The problem with government control is that these conditions are not likely to be met. Take the recent cap on compensation imposed by US President Obama on assisted banks. Neither a maximum nor a minimum wage is likely to promote the long-term competitiveness of these banks.
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