An Eight-Point Plan to Avoid a Depression

This post first appeared Nov. 19 on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

Systemic risk is right back on the table. And this is what it looks like: Citigroup(C Quote) at $5, Bank of America(BAC Quote) at $12 and Wells Fargo(WFC Quote) at $23.

Systemic risk is, well, too risky, and we all know at this point that it is a confidence game. Without confidence, the question becomes, "Will so-and-so make it?" and even I am not willing to fill in the blanks.

What gets rid of systemic risk? A plan. A vocal plan that says, "We will never have another Lehman on our hands again."

But the policymakers, Paulson and Bernanke and Geithner, have simply refused to even admit that Lehman was a mistake, so what good is their promise?

What would I do, if I were in charge? OK, presumptuous hubris, but what the heck: I would have Obama hold a press conference with or without Paulson and Bernanke, and I would have him say loud and clear, with his new Treasury Secretary and new housing czar, charged with a simple task -- stem house-price appreciation -- and job czar, simple task -- create jobs -- and promise an eight-point plan:

• 1. We will not let any of the big financial institutions fail, because Lehman was a mistake on our part that reintroduced systemic risk, and we want that off the table for good.
• 2. We will make sure that your life insurance and your annuities will be there for you.
• 3. We will stem house-price depreciation through a series of tax credits to buy homes and a reinstallation of TARP, complete with an accounting change that does not force banks to take a hit for now against capital, and a purchase of whole loans to refinance them, including the loans on the books at Washington Mutual, now JPMorgan Chase(JPM Quote) and Wachovia(WB Quote), now Wells Fargo, which have been decimated by Paulson's ridiculous TARP walkaway.
• 4. We will reach out to the servicers of collateralized debt obligations, where 80% of the bad mortgages reside, and we will adjust principal of the mortgages to make some of them come back to life, provided that borrowers are current, and we will stop moralizing. We can give a tax credit to those who pay on time if we have to.
• 5. We will institute a sizable tax credit for hiring people, and we pledge to stop unemployment before it reaches double digits.
• 6. We will provide debtor-in-possession financing from the U.S. government for any auto company that files bankruptcy, and we will guarantee warranties. We will do nothing for those that don't.
• 7. We will begin a trillion-dollar infrastructure program to rebuild America from the ground up.
• 8. We will push our allied central banks, the ECB and the Chinese, to cut rates to 2% to instill growth to their economies.

That eight-point program will stop this moment from cascading to 1932 and instill confidence to bring money that is everywhere on the sidelines into a riskier asset to allow us to grow again. It will take the Great Depression II off the table once and for all.

This must be done now. Today. January is too late. Another depression will not be avoided if we don't.

This is not a message of despair, it is a message of hope, because something can still be done.

And must be done.