Government Made the Mess

Second, bank deposit insurance should be increased to at least $500,000, and similar insurance should be provided for money market accounts to avoid a possible run on the banking and money market system into Treasuries.

Third, the government and the Fed should inject liquidity into the corporate and municipal bond markets. Both of these markets have been frozen due to all of the fear and uncertainty in this environment, combined with the capital limitations of the banks that normally support these markets.

The government is already doing this for the mortgage market, so it would also just level the playing field and stop unfairly favoring mortgages. Any liquidity provided by the Fed for these operations would be short term and, if not repaid in full, would ultimately result in the equity of the entities that borrowed the money taking those losses first.

Fourth, create a transparent auction process for the toxic assets of lenders in public view and allow any investor in the world to bid on them. This means placing these toxic lender assets on the equivalent of eBay and getting the highest bid.

If the lenders don't like the highest bid, they don't have to sell. However, the government would then have a transparent market price by which they could evaluate these toxic assets. That would become the basis for determining if the bank is solvent or not and taking appropriate action as explained above.

I want to believe that we can work our way through these problems with a sensible and transparent process built on sound economic principles rather than a process built around secrecy, back-room deals, power grabs and fear. I hope we have learned something from history about the dangers of making policy decisions based on panic and a rush to judgment. Maybe I'm too much of an optimist. We'll see.