What to do with failing banks?

Stiglitz chimes in on CNN; he's says nationalize them, restructure the incentives, and look to Sweden as an example. I can't find it right now, but I read recently (I think it was via Marginal Revolution) that Sweden barely did anything with regards to their banking system and nationalization in the early 1990s. And with regards to government involvement improving incentives...well, that's a tough one to buy.