The New York Times stated the obvious this morning:

It is also painfully clear that more of the same black-hole bailouts are failing to restore stability or confidence. Stock markets worldwide tanked on Monday. A growing chorus of economists and commentators — including this page — are urging the Obama administration to adopt a more comprehensive solution: a government-run restructuring, or nationalization.

The government would not only take an ownership stake in firms that require extensive and ongoing bailouts — as it has done with A.I.G. and Citigroup — but also direct control of the weakest ones. It would get a realistic assessment of the assets crippling them and revamp their finances before returning them to the private sector, where they would be smaller and healthier and could start lending again.

We know that many Americans are uncomfortable with the word nationalization — politicians even more so. But each new bailout of old losers only feeds mistrust of the government and weakens public support for the even tougher decisions to come.

Exactly right. As long as the administration postpones the day of reckoning for the banks, using all these pointless stalling tactics to put off the need for the government to simply take over, the market won't bounce back. Everyone knows some (maybe most) of the major banks are already insolvent, and the "bad bank" idea is little more than a joke at this point:

Fears that the world’s economies are even weaker than had been thought ricocheted around the globe on Monday as investors from Hong Kong to London to New York bailed out of stocks.

Losses cascaded from one market to the next as concern spread that government efforts had not been enough to stabilize troubled financial institutions or broader economies. Only by Tuesday morning did markets show signs of stabilizing, with key indexes in Asia showing more modest declines.

But Monday’s losses were bad everywhere, and particularly severe in Europe, where an emergency meeting over the weekend ended in bickering and the rejection of a bailout plea from Hungary.

[...] “It’s pretty despondent everywhere,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “O.K., there are signs that some of the leading indicators have stabilized to some extent, but it’s at a very, very low level, and we’re not seeing corporate investment picking up, or consumers starting to spend again — in other words, the traditional mechanisms by which economies come out of a recession are absent at this time.”