“Milton Friedman was correct that the Fed contributed to the Great Depression by allowing the money supply to contract in the face of a credit freeze.”
Same thing happened in 1979.
Then, we were finally able to get inflation under control by abandoning the foolish attempt by the government to directly manipulate interest rates and instead simply focus on a stable monetary target.
In the current case, I think we’ll just limp along for probably quite a while. Truth be told, the banks need quite a lot of equity capital, but they really don’t want to take it from the government and give up more control over their own business. They’ll just continue to put the best face on things and try to muddle through. The government will do what it can to try to allow them fat net interest margins.
The Japan situation in the 80s and 90s seems to me like an apt parallel for right now.