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Are the banks insolvent? Which ones? How do we find out? What do we do until we can find out?

The meltdown continues this morning [Friday the 10th].

Is your job at risk because of a bunch of stupidity by bankers you’ve never met?

What can you do about it?

******** Here’s my proposal. *******

Housing isn’t the issue causing the continuing selloff in the financial markets.

It’s the Risk, Stupid.

***
Half of all Americans work for some firm whose payroll totals more or much more than FDIC insurance covers. All of those firms have treasurers who are trying to protect their money from a surprise failed bank. Dead bank => failed paychecks and maybe failed company.

So all those treasurers are scrambling to remove their money from both the banking system and the commercial paper market.

They have no confidence that their money is safe. Too much risk.

***
You fight no confidence by telling the truth and/or guaranteeing their outcome.

Here’s how:

For those firms [banks and borrowers] that choose to participate, the government guarantees their deposits and short term borrowings for a maximum of 364 days, or until exit conditions [below] are met.

During the period of the guarantee, the protected firm must: [summary: it must act as if it is in receivership in bankruptcy court].

1. ask that all trading in shares, capital debt, and derivatives be suspended.

2. cease all leakages of capital [dividends, repurchases, option issues, capital debt repayment, etc.]

3. refrain from expanding more than 5% or into new businesses,

4. limit executive and managerial pay to not more than $7,500 per month.

5. begin to publish, monthly, in both the newspapers and via the Internet, their best picture of both their actual and potential credit loss situation, including the assumption that real estate prices in their markets will crash back to January 2003 levels for “move in condition” properties. {Why January 2003? My macro level estimate is that the housing markets will clear at that price level. Details on request.}

To exit the program, the protected firm must publish it’s loss information weekly for at least four weeks AND notify the public of its intended exit date.

During the exit period, the government repays all the firm’s deposits and borrowings if necessary.

If, at the end of the exit period, the firm is unable to finance itself without government help, it immediately enters bankruptcy and is liquidated.

***
This will restore confidence. Company treasurers with funds that need to be deposited will not worry about whether the bank will be there tomorrow.

And Americans will KNOW that their paychecks are good.

Further, it lets the banks return to making ordinary loans to borrowers with good credit in the ordinary course of business — which they aren’t doing now.

AND, it forces the banks and companies to come clean with their losses — thus permitting the marketplace to decide which companies should die and which can continue.

***
Give it some thought — bloviating in front of the TV cameras and asking the markets to be patient hasn’t worked and isn’t going to work.

What the markets want is the TRUTH.

Your improvements to this program are welcome — “saving houses” won’t fix the risks the company treasurers see and thus won’t stop the collapse of credit — and maybe your job, in which case, your house is gone anyway.