Citigroup's financial crisis is emblem of capital drought

Time and again, big banks such as Citigroup Inc argued that irrational and seized-up markets, not the woeful state of their balance sheets, were to blame for convulsing share prices.

For more than 18 months, the government went along with that thinking. Instead of demanding that banks recognize their losses, overhaul operations and quickly raise equity from private sources, regulators bet a flood of money would unclog credit markets.

When that didn't work, the government doled out billions of dollars to more than 100 banks through the Troubled Assets Relief Program, or TARP, again with few demands that banks take harsh medicine. That hasn't done the trick either.