BANKS have been vilified for excessive leverage and over-enthusiastic pursuit of short-term profits. The markets have given their verdict by rapidly reducing the equity value of virtually all banks. At the same time, these same vilified institutions are being noisily told by Chancellor Alistair Darling to lend to all and sundry, even though the cost of borrowing the money continues to be significantly elevated from the official rates that the Bank of England provides.

Meanwhile, a pressurised Financial Services Authority is much more actively watching banks to make sure they are not doing rash things.

How can banks be eager to lend in such circumstances - especially when the GDP prognosis, the best indicator of the likely return on their lending - is so poor? They obviously can't.

It is, of course, true that the more reluctant banks are to lend, the worse the economic outlook will get, so something needs to be done to break the logjam. It would have been so much easier to stop if our policymakers, both monetary and fiscal, had reacted quicker to the signals a year ago but hindsight is a famously good friend.

One consequence of the present global financial crisis is that the Government might well need to create a state bank to provide capital that our major commercial banks cannot.

That is a proposition some might think ironic, coming from someone who is head of economics research for Goldman Sachs, an institution that might be defined by some as embodying the culture of bonus-driven, globalised financial capitalism.

Yet the UK is in an exceptional position: we have a weak housing market and banks that have lost their appetite and ability to lend, which is making the housing market worse, which in turn makes life harder for the banks.

It has contributed to the spread of weakness into all other parts of the domestic economy. Rising unemployment is following, which in turn is making the feedback loop even worse.

Against such a background, previous unthinkables become not only thinkable but possibly the wiser choice.

The global background matters here. It is now more than seven years since I wrote about the notion of the "BRIC" economies for the first time - the economies of Brazil, Russia, India and China.

We at Goldman's believe these economies will be critical to the future of the world economy. Indeed, looking at 2009, if the world is to have any positive economic growth, it will primarily come from these countries.

Our latest global GDP forecast for 2009 is +1.2 per cent. We forecast growth in the "advanced economies" to be negative, meaning GDP will drop in all the developed economies. In the UK, a decline of somewhere close to two per cent is possible. In the BRIC economies, by contrast, we currently forecast GDP growth of around five per cent. Goldman Sachs CEO Lloyd Blankfein has re-confirmed our strategy of exploring opportunities to these economies.

Some of the success of the BRIC economies in recent years has involved, and will continue to involve, the role of their governments, so I am not sure why it should seem so odd that a more heightened role for governments elsewhere might be appropriate.

Indeed, the environment in which the so-called advanced nations, especially the US and the UK, now find themselves does require some fresh thinking, compared with most periods I have experienced as a banking economist in the past 27 years.

We are currently expecting the US economy to decline between 1.5 and two per cent next year; if we are correct, it will be the weakest for a long time. The drop in personal-consumption expenditure will be the weakest since the Second World War. Judging by last week's universal data, including much of Europe and the UK, the picture in the near term is similarly bleak.

If we focus on the UK, one thing that seemed obvious to me during the Northern Rock crisis was that whatever the cause of the problems, nationalisation was the only remedy for it. For those involved in dragging the UK up from the poor-performing days of the late Sixties through the Seventies, the very phrase "nationalisation" invokes horror - understandably. Yet After months of discussion, Northern Rock was indeed nationalised, and has had its mortgage-lending business slowly wound down since.

An important point that has further influenced my thinking is that as a result of the repeated traumas in the UK and global financial systems since, depositors now have more faith in Northern Rock than probably any other recognised UK financial institution. I kick myself for being so stupid as not to have opened an account with them when you could.

Even more often, I find myself asking: "Why is Northern Rock not being used as a bank that will expand lending, at least to the UK housing market?" When I mention this to policymakers, I am usually told that under EU rules we can't provide state aid. But exceptional times require exceptional measures.

The Government's bold decision to offer to recapitalise most of the UK major banks will not necessarily stimulate lending. As the Government owns it, why not use Northern Rock - or some other bank, to start lending more broadly in those clear cases where "good companies", small or large, can't get capital from their deleveraging banks?

Of course, since the UK taxpayer has taken a stake in many banks, views about what our banks should be doing have become highly charged, frequently contradictory and emotional.

But the Government needs to use the mechanism it has at its disposal to interrupt the downward spiral. Using Northern Rock, the Post Office or nationalising another institution that touches the economy might be the way. It wouldn't need to be permanent, though that might not be so crazy in any case. Almost definitely, it would end up with a decent return.

Critics might say it will cost the taxpayer ultimately or that the Government is not known for making better decisions than the private sector. The point, though, is that the Government would not face the same market issues that currently govern all private institutions trying to deliver at the same time, adding to the negative feedback loop we all fear. It might even be able to stop it.

That's why I believe that a reliably financed lender might just be the key to the recovery from the current malaise we all want to see. Not such a strange idea, after all.

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