Canada's in good shape, relatively speaking, because investment banks have been part of commercial banks and both are properly regulated. Now it's cherry picking time for the Canadians.
But besides selling off huge chunks of the American financial sector, and economy, here are a few more fixes that must be put in place to stop the slaughter in stock markets, as suggested by Fred Lazar, Professor at York University in Toronto.
1. Bernanke and Paulson should invite their counterparts from Europe and Asia to Washington. Once there, they should lock them in a room, with a number of thugs from the Teamsters hired to act as security. No food or drink should be provided. Then, while I would like the Teamsters to pound some sense into the Europeans and Asians, I will settle for Bernanke and Paulson reading them the riot act. In particular, that if they do not get their full cooperation, the US will go into protectionist mode once the worse of the crisis is over. They must cut rates down to the bone in order to stave off a Great Depression.
2. To stop the dumping of stock into markets by hedge and mutual funds due to redemption demands by their investors, Bernanke, Paulson and their brethren from Europe and Asia should hold a summit of financial CEOs plus the hedge, pension and mutual funds.
The hedge funds should be offered access to short-term financing and a 12-month freeze on redemptions. In return, the hedge funds will give up their rapacious 2% fee, and reduce their 20% share of profits to 5%.
If they do not agree, they should be cut off from funding, and the international government bailout company should move in to buy all assets which the incalcitrant hedge funds will be forced to liquidate at pennies on the dollar. The objective is to stop hedge funds from dumping assets.
3. Similarly, the mutual funds should be offered a 12-month freeze on redemptions, but only if they reduce their MERs to below 75 bps.
4. Commercial banks should be told that they better immediately start lending short term and lower the rates on these loans. In return, the bailout company will acquire their most illiquid and toxic assets for about 60 cents on the dollar. In addition, the CEOs will only be paid $250,000 per year for each of the next five years, with no bonuses, stock options, share grants or other forms of compensation.
If a bank refuses to go along with this, it should be excluded from the buy-out of toxic assets, and the governments should bad mouth the bank so as to drive down the share price. Create uncertainty and panic in the minds of investors in banks who do not go along with the plan, and then the bailout company can buy control at a deep discount.
I blog at Financial Post