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By removing the forced mark to market, can the financial institutions then sort out which assets are failed and separate them from the other paying assets, and with insurance by a safety net for the paying assets? Yes, and that is what in essence the Republican plan has been trying to insert, to reduce by hundreds of billions the exposure of failing assets. Would you like to elaborate on that? I would be eager to read what you have to say in that regard.

"By removing the forced mark to market, can the financial institutions then sort out which assets are failed and separate them from the other paying assets, and with insurance by a safety net for the paying assets? Yes, and that is what in essence the Republican plan has been trying to insert, to reduce by hundreds of billions the exposure of failing assets."

Maybe. Sorry to let you down, but I just don't know. That's the kind of detail-based decision that I hope is being analyzed right now by smart people on our side with all the numbers in front of them. An corollary might be to raise the statutory floor for the various asset-based metrics. IIRC, the floor for Fannie Mae was 5.2% and for ordinary banks it's 10%-- (don't treat those numbers as gospel, they're just shards in my memory). Sarbox's m2m rule forced assets in the balance sheets down during the real-estate correction. So some modification of both m2m and the statutory floors might buy time for the issue to be resolved by the free market. Of course, m2m is not by itself a bad idea-- certainly it's good for business for accountants! But balance sheets are supposed to represent reality. Still, it factors into the whole mess as a trigger for many defaults.

Meanwhile, of course, is the probability of that vapor-lock I've been talking about. That is the thing that must be prevented. An injection of liquidity is the usual prescription for that; the difference this time (as with AIG) is government ownership of the means of production. For good reason, that makes a lot of people very nervous, including me. At a minimum, let's make it temporary.

Note I haven't spoken of the notion held by some proponents that the bailout would be profitable to the taxpayer. Lovely if true, but irrelevant, except as a selling-point. It's keeping that $62 trillion pyramid standing that I'm most concerned about. Conceivably, the Constitution becomes null and void if that falls.