I'm not convinced!

The Fed and the Treasury insist that the current solution, that is to say, the bailout that failed, "is the only solution". Furthermore, both Bernake and Paulson have thrown $100s of Billions at this problem. How do we know that the current proposal will work? How do we know that the $700B will be enough? What happens if it isn't?

I am not convinced. Here is the summary of an alternative proposed by Karl Denninger on his website.

http://market-ticker.denninger.net/archives/593-CONGRESS-STOP-AND-THINK!.html

(Also see http://stopthehousingbailout.com/)

"The solution is simple, it is elegant, and it will work.

1. Force all off-balance sheet "assets" back onto the balance sheet, and force the valuation models and identification of individual assets out of Level 3 and into 10Qs and 10Ks. Do it now.
2. Force all OTC derivatives onto a regulated exchange similar to that used by listed options in the equity markets. This permanently defuses the derivatives time bomb. Give market participants 90 days; any that are not listed in 90 days are declared void; let the participants sue each other if they can't prove capital adequacy.
3. Force leverage by all institutions to no more than 12:1. The SEC intentionally dropped broker/dealer leverage limits in 2004; prior to that date 12:1 was the limit. Every firm that has failed had double or more the leverage of that former 12:1 limit. Enact this with a six month time limit and require 1/6th of the excess taken down monthly.

Once 1-3 are put in place then send in the OTS and OCC examiners and look at every financial institution in the United States. All who are insolvent and unable to raise private capital immediately are forced through receivership where the debt is converted to equity and existing equity is wiped out. With the CDS monster caged the systemic risk is removed, the bondholders provide the cushion for recapitalization (as it should be) and the restructured firm emerges with no debt while the former bondholders are now the owners (of the equity) in the resulting firm.

With a clean balance sheet the restructured firms remain in business and open the next morning able to raise and attract capital. "