Clusterstock this morning has a great summary of a Minneapolis Fed paper, The Current Financial Crisis: What Should We Learn From the Great Depressions of the Twentieth Century. Clusterstock simply titles their post, How To Cause Great Depressions. The two salient points:
1. Seizing and breaking up insolvent banks while reprivatizing strong ones is expensive, but it works. See Chile and Finland.
2. Nursing insolvent banks and unproductive firms along leads to a Great Depression. See Mexico and Japan.