4 simple steps to restore confidence in the financial world
With all stock markets in the world dropping in free fall, if I were Henry Paulson, Secretary of the US Treasury, I would do the following 4 simple things to resuce the financial markets:
i) Guarantee all liabilities of US Banks: They have done it with Fannie Mae and Freddic Mac. It is just an extra step in boosting confidence in the financial system. With this measure, banks will be willing to lend to other banks again. Liquidity will be restored and financial markets will be getting back to normal.
ii) Get bank equity at a very low price as a return: Of course the government should not do this for free. They will be able to get a majority stake of the banks at a very low price. Existing equity of current shareholders will be further diluted. But then who cares? Bank shares are down 80% or more this year already. Most people who hold bank stocks won’t be surprised that their stocks will go to zero anyway, given the current situation.
iii) Sell this idea to other countries: Of course Mr. Paulson should ask his best buddies to get on the same boat. The UK, Belgium, and Iceland are already going in this direction by nationalizing their banks. Just need to ask Japan, Germany or maybe Australia to do the same so that you will not feel awkward doing this alone. The currency market would not move much with this plan because all major countries are doing the same thing.
iv) Wait a few years and sell the banks back into the public market with a 3x, 4x return! With market confidence restored, market will go back up gradually and in a few years, after the nurture of the government, most banks (that are not closed down) will be in good shape. Equity for these banks will be up big time, and the government should realized their investment and sell them back to the public market! In this way, the U.S. national debt may actually go down too! 
Mr. Paulson, step up and do something quick in this Columbus long weekend to restore people’s confidence!
