While practically all of the focus this week will be on the budget, the plan to clean up the banking system will be of more long-term significance to the country. The bank clean-up goes to the core of our monetary policy. Without properly functioning banks, we will not pass any interest rates cuts onto the economy. We will have an engine, but no petrol so to speak.

Unfortunately, Brian Lenihan, the chief mechanic, seems to have an unusual view of how the engine works, while the mechanics around him are just keeping their heads down, hoping to hold on to their jobs.

However, this engine works not only on liquidity, but on expectations, too. Therefore, we have to offer hope to those who are now in debt, so that they will come into work and continue to try to keep the businesses open while the banks figure out what to do. The worst thing now would be to pull the plug, or for the banks to expect to get all their cash back. Hardening loan terms now will only cause more bankruptcies.

But how do we ease the repayment pressures on businesses that have a future but too much debt without making the taxpayer liable for the sins of the delinquent debtor? More crucially, how do we keep the banks on the hook so that they carry the consequences of their recklessness?

A bank plan has to answer all these questions satisfactorily. This is why the current favoured plan, which is a ‘financial skip’ loftily termed an asset management company, won’t work. It falls down on the third issue. If we buy all the banks’ distressed loans at today’s market value, we will let the banks off the hook.

So, how else could we do this while satisfying the second stipulation that this should not cost the taxpayer a penny? First, the state should insist – as its primary stipulation – that the bank plan should not cost the taxpayer a penny. Secondly, it would seem obvious that all the senior management should go, but alas that looks now to be a pipedream and not the way our country works.

In Ireland, the government appears to be willing to saddle the person on the street with the bill for the bankers, and not even demand the heads of the guys who enriched themselves while bankrupting the country.

This is even more galling when those of us who questioned the wisdom of all this and warned that the banks were taking us for a ride five years ago were told to ‘‘belt up’’ by ministers and by the former taoiseach.

Having made the fatal mistake of boosting the property market on the upside to satisfy their own political ends, we now are faced with the equally ‘appalling vista’ of buying bad assets too early with real cash and compounding the problem. We are about to unveil the most expensive ‘cash for trash’ scheme the world has ever seen, and no one is saying anything about it.

The government is asking us to trust it on the price of a piece of land or a house. Why should we trust it? Nothing that the government has done over the past ten months would suggest that it could call the bottom of the market, so the potential for a monumental mistake is enormous.

Once this banking plan is executed this week, the senior management and boards of the banks are free. They will have no bank debts on their books and they will start lending again. Their share prices will rise because we, not they, are taking the rap for this delinquency.

Do you know what these lads will do then? They will consolidate the system. This will result in the delinquent management of the two big banks, swallowing up the smaller banks and they will end up personally in a stronger position after the bust than they were in the boom. If anything reinforces our ‘banana republic’ tag, this move will.

However, it is not just the Minister for Finance who is at fault here. He is, after all, just one man at the top of a deeply – in fact, embarrassingly – out of touch and incompetent group comprising the Central Bank, the Financial Regulator and the Department of Finance. If the top layer in this troika keep their jobs, nothing will change in Irish finance. We have the same institutions that failed to predict anything now charged with overseeing the recovery.

Instead of borrowing a fortune today and realising the losses of the Irish banks at today’s market price, a smarter move would to be to make the banks, not the taxpayer, pay for their mistakes.

Why not entertain the following approach? First, we admit that the bad debts will be €50 billion or even as much as €100 billion. We don’t have this type of money. But the European Central Bank (ECB) does. The G20 said they would do everything in their power to unlock the system, so let’s test this global commitment by asking the ECB in the spirit of solidarity to do something inventive.

The Irish state could set up an asset management company to manage the distressed debts of the bank. This ‘financial skip’ would take over all the management of the debts but, crucially, the banks would still own the debts, because the new asset management company would simply be working out the debts and trying to get the best price. This is the first crucial difference between this plan and the government’s preferred plan.

The banks would pay a set figure of around €6 billion to the state over the ten years of the asset management company’s life. This could go to build hospitals and roads.

This implies no dividends from the Irish banks for years, but the shareholders would get the upside of the stocks rising as the economy recovers. This will help our pensioners and the thousands of Irish people coming up to retirement age, whose nest eggs have been smashed by the greed of the banks’ top brass. As the market gradually recovered, the banks would begin to recover some – but not all – of their bad debts.

The most significant part of this plan is that it doesn’t cost the taxpayer a penny, and the responsibility for the bad loans remains firmly with the banks, so that they recover without being bailed out by us.

If we are serious about moving the country on, and if the G20 is serious about international solidarity, this is the plan for us. However, if the state is in the business of mortgaging the poor to bail out the rich, the current buying at market prices plan will be announced. We may well know whose side they are on by the end of the week.

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