The G7 and G20 need to agree to support a coordinated effort:
1. Liquidity in Interbank – banks need to lend to each other to create money supply.
2. Recapitalize Institutions – create money supply and liquidity so banks take risk and lend money, not just pad their own balance sheet to avoid runs on the bank.
3. Use authorities to support Institutions that are systemically – companies like Lehman Brothers needed to be supported as the effects affect all banks in the system.
4. Deposit Insurance – we need to secure monies across liquid asset classes in accordance to the risk of each deposit.
5. Mortgage markets and illiquid assets – we need to refinance the entire mortgage industry, potentially nationalize it, lowering interest payments and creating opportunity for quick healing. This will create a huge profit center for the US government and can then be sold off in a market within 5 years.
After a great period of deregulation, wealth and economic growth, we need to move to a short term period of regulation and get back to economic fundamentals of job, spending and lending growth. We need to avoid getting back to a credit card culture and over-spending. In theory, our quality of life will continue to rise, although real incomes will not. We definitely need to heal our mortgage, real estate and credit businesses or they will never come back. In a global economy, we need to understand how to get by with less and focus on education, healthcare and the communities we live in. In a funny way, globalization is creating localization.