The one reservation that slightly dampens the euphoria of Obama groupies is the thought that now, with a massive recession under way, is a most inopportune time to come into office. Nothing could be further from the truth. From Obama's viewpoint, this is a preternaturally opportune moment, an unhoped-for conjunction of circumstances that uniquely enables him to implement a programme that would otherwise have been unthinkable.

a debt-equity swap

LIF said: Jan. 19, 3:17 PM MY PLAN 1. Mandate a 12-1 leverage cap for all financial institutions to take effect within 180 days. This 12-1 leverage cap has to be calculated using real market prices, not mark-to-model prices. 2. Temporary ban on capital raising by banks – water can’t dilute poison. You eliminate the poison first then add more water. 3. Force banks, etc to reach this 12-1 leverage cap by selling their toxic assets within 180 days via a US Govt Auction. The US Govt will be the Auctioneer but will NOT bid for assets 4. Any bank that is unable to sell sufficient assets to bring it under the 12-1 leverage cap will automatically nationalized by the US Govt at a price of $1. All shareholdrers and bond holders forfeit their assets. This will provide an incentive to the banks/financial institutions to sell these assets. 5. The US Govt will now hold all the toxic assets to maturity - this will prevent private market bidders from low-bidding in (3) above. Private market bidders in essence are being told, you buy the assets during the auction or you will not have another opportunity to buy the assets, as the US Govt will sieze them at an effective rate of ZERO and then hold them to maturity. 6. Any bank that falls under nationalization will also have its CEO, Board of Directors and members of the Management committee for the past 5-10 years disgorge all compensation earned during the past 5-10 years. 7. Create standardized CDS products that traded on an electronic exchange. All non-standard CDS products should be liquidated in the OTC market or swapped into standardized CDS products prior to the commencement of the new CDS exchange. The exchange will commence within180 days. 8. New Mortgage Financing Rules: 20-30% minimum govt mandated down payments. Strict Debt to Income limits, etc. These rules must be codified into federal law. 9. New Credit Card/Auto Finance rules: strict rules on the amount of credit card/Auto finance debt available to consumers.

When the government guarantees the value of a troubled asset, what it is really doing is promising to pay anyone who ends up owning it the difference between the phony, inflated value and the actual value it fetches on the market. Buying troubled assets, if that actually ever happens, works pretty much the same way: the government pays more than the asset is worth, exchanging something really valuable--dollars--for something that has a lot of, well, sentimental value for the bank.

evidence suggests more credit default swaps are traded in London than in the United States according to the US Federal Reserve, so US action alone cannot address perceived problems.

As corporations, home owners and credit card holders go into default -- stop making payments -- many financial institutions are being hit twice on their balance sheet -- once by the bad loan and then by the associated CDS default or obligation.

CDS trading has expanded 100-fold since 2001 as financial institutions including insurance companies and hedge funds as well as investors have used the contracts to protect against bond losses and speculate on companies' ability to repay debt.