Whether or not you agree with his actions, James Baker is one of the toughest negotiators ever to hold public office. Once US Treasury Secretary under President Reagan, now he has offered a tough, frank solution to our banking crisis. Mr Baker has always been straightforward in his approach and has a talent for cutting to the heart of difficult problems. Bold, decisive action is his trademark.

You are standing in Central Square in Kiev, Ukraine. and you notice about a dozen tents. Upon asking a passerby you find out that these are people protesting the government. You listen and hear unemployed workers shouting: "Get rid of them all. People are fed up."

Some cities have had days without heat or water because they cannot pay their bills. Steel and chemical factories are idle and thousands of workers are are unemployed. World leaders are becoming increasingly concerned about Ukraine because they fear that the discontent and financial crisis will spread across Eastern Europe.

The big reason that Hank Paulson pushed a government takeover of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) is that he concluded, after Morgan Stanley (NYSE: MS) scrubbed their accounting, that the $84 billion in capital stated on their books was really worth $50 billion less. This made me wonder what would happen to the capital of other big banks if they took a similar 60% haircut.

The answer? Eight large U.S. investment banks would lose $372 billion worth of capital -- putting them all well below the minimum required capital ratios -- with an average ratio of equity to assets of 2.5% ($248 billion in capital to $9,788 billion worth of assets). My conclusion is that these banks lack capital to support their level of risk. So it should be no surprise they are reluctant to lend. The government and other sources of capital don't want to step in. And the challenge of recapitalizing them will be left for the next president.

Here are the four most vulnerable banks based on how low their ratio of equity to assets would be if they took a 60% capital haircut which marked their balance sheet more to market than to model:

• Morgan Stanley. Equity falls from $34 billion to $14 billion --> equity/assets from 3% to 1.3%
• Merrill Lynch (NYSE: MER). Equity falls from $35 billion to $14 billion --> equity/assets from 4% to 1.4%
• Lehman Brothers (NYSE: LEH). Equity falls from $26 billion to $10 billion --> equity/assets from 4% to 1.6%
• Goldman Sachs (NYSE: GS). Equity falls from $45 billion to $18 billion --> equity/assets from 4% to 1.7%