Selling Tata Nano to US

Apparantly Tata plans to sell Nano in US by 2011/12.

Fundamentally I think it makes sense in car-oriented US cities now wanting cheaper transport solutions. This is the kind of consumer behaviour shift that we can expect in the coming years. Typically, such changes take decades - but economic hardship can hyper-accelerate them. US consumer will be seen cutting cost and looking for cheaper solutions.

Global Slowdown Solutions IV: Create earnings credit will follow

Current problem won't resolve by just establishing an alternate credit channel. Once the US credit channel is available. Credit flows based on certainity of earnings. Economist's View: Galbraith: No Return to Normal indicates how Galbraith points to this critical point. Let me paraphrase Galbraith:

In other words, Roosevelt employed Americans on a vast scale, bringing the unemployment rates down to levels that were tolerable, even before the war—from 25 percent in 1933 to below 10 percent in 1936, if you count those employed by the government as employed, which they surely were. In 1937, Roosevelt tried to balance the budget, the economy relapsed again, and in 1938 the New Deal was relaunched. This again brought unemployment down to about 10 percent, still before the war.

The New Deal rebuilt America physically, providing a foundation (the TVA’s power plants, for example) from which the mobilization of World War II could be launched. But it also saved the country politically and morally, providing jobs, hope, and confidence that in the end democracy was worth preserving. There were many, in the 1930s, who did not think so.

What did not recover, under Roosevelt, was the private banking system. ... If they had savings at all, people stayed in Treasuries, and despite huge deficits interest rates for federal debt remained near zero. The liquidity trap wasn’t overcome until the war ended. It was the war, and only the war, that restored (or, more accurately, created for the first time) the financial wealth of the American middle class. ... But the relaunching of private finance took twenty years, and the war besides.

A brief reflection on this history and present circumstances drives a plain conclusion: the full restoration of private credit will take a long time. It will follow, not precede, the restoration of sound private household finances. There is no way the project of resurrecting the economy by stuffing the banks with cash will work. Effective policy can only work the other way around.

We have to realised that credit and banking feeds off global real economy. It is actually a cost, however small, for the real economy. So once jobs come back and incomes stabilize (at whatever levels), you will see credit coming back. Without certainity of earnings, the credit channel goes in self-preservation mode - waiting for certainity to return. Being global, the channel can absorb far more bailout/stimulus than any single nation can provide.

The problem of global income adjustment and therefore credit offtake ability will hit us next. This is the heart of the problem. Next: we will see how we can fix this!

Global Meltdown Solution Part III: Alternate credit channel

The global credit channel is a central sysmptoms and collateral damage of current crisis. The core of this is in US and therefore US government agencies are attempting bailout after bailout. The US government is not liable for rescuing an essentially global channel. It's first duty to clean the domestic channel. The two are cross connected to such a degree that they cant tell what they are fixing.

The solution, to my mind, is simple. Create an alternate credit channel - what I call "the modified good bank solution".

• Create a good bank - with regulatory charter that allows lower capital norms, higher government guarantees etc. so that it will have liquidity, capital and ability to acquire assets.
• Let it give credit to worthy borrowers who have the ability to repay.
• Create a mass loan transfer drive - where the borrowers to move their loans to this bank - rather than buying loan books from established banks.
• Accelerate the process by establishing uniform common minimum norms for acquiring loans. Start with lowest risk with highest documentary evidence.
• Augment the document checking using other government agencies workforce.
• Repeat the drives till you have covered big chunk of population. Government can take over some homes and convert them into temporary offices - establish geographically wide network - quickly.
• This bank should be broken up into managable units and privatised at a pre-committed date in 5/7 years time.

The global bailouts are more complex. This should be funded with pooled money. Using the IMF or world bank is a good starting point. More on that later.

Addendum: Why Us needs to fix domestic credit channel first?
US is biggest consumer of the world. The world needs able US consumers to continue to spend albeit to their comfort level (and definitely to lesser degree). The able and wanting consumers are currently being denied a chance to consume. This is dtrimental to everyone.

Global Meltdown solutions Part II: Dispersion of production

Changing producer competitiveness

The question is invariably based on Michael Porter's work on competitive advantage of nation. The only modification is understanding the structural or fundamental advantages. We need to separate out the transient, artificially imposed advantages. A deliberately devalued currency is such a transient man-made advantage. And it will break down. Michael Pettis, makes a fantastic argument how trade policies can influence producer dispersion.

Who will be new producers?

Producers are located due to various competitive advantages of a region. One of the reason is quality and cost of manpower - let us call this man power profile. Similarly we have a job profile of an economy. Job profile, for simplicity sake, is based on technical knowledge prequisites and volume of work. Now ideally in sustainable case the job-profile and man-power profile of an economy should match. Currently there is a mismatch in developed world. US and EU jobs are getting polarised between unmovable low value addition activities on one side and exceptionally high value adding activities on other.

Man-power profile will stablize

The volume of low-value addition jobs will have to rise in US - to fit with lowering relative education standards. Now education system in US is way better than other nations. So we are simply comparing US in the future to US in recent past. The problem is in very short-term jobs movements are a zero-sum game (time till entrepreneurship discovers new jobs). So it means US wanting jobs will mean job losses in other part of the world. That, to my mind, is a seed of discord in near future. Hope is migrant workers might go back to home countries and US might actually have a brain drain to ease the pressure a wee-bit. In medium to long term US entrepreneurs will definitely figure out a way to create value in new and innovative ways -creating jobs for the economy.

Seamless dispersion of production centers
The intersection of man-power and job profiles will mean a more seamless dispersion of production centers across the world. The first demonstration of this will come when some manufacturing jobs moving back to US.

Global Meltdown solution Part I: Consumption centers

Who can be consumers?

Citizens, who have savings and income to replenish the savings post buying goods and services, can be consumers. Rest cannot! That implies the developed world - probably with exception of Germany and Japan, cannot be consumers. China, India, Indonesia and other countries with domestic savings will be our consumers.

Value of consumption

Currently, the exchange rate equations are aligned to repress the consumption behaviour of these populations. In the interest of global recovery these equations will have to be reversed. This will entail a lot of protectionist pressures that are detrimental to consumers. Such measures will wipe out any hint of global recovery.

Not consuming is always an option

Typically protectionist measures reduce the quality of local goods, increase prices and thereby cheat consumers out of their hard earned money. Today, the globalised consumer, is aware of product benchmarks and price parity across geographies. In current situation, consumers may simply "not consume" inferior products. They will choose to increase their savings.

How protectionism is detrimental to the world?

This means the advantages of protectionism will accrue only if it continues for prolonged period of time in near future. Till it continues - global depression will continue. It means you will see more enforcement at customs counters in airports, ports and national borders. It means increased smugling of attractive goods establishing a supply chain for drugs, weapons and other illegal trade. All detrimental in socio-economic terms.

Global Meltdown solution - Introduction

I have been amongst the most pessimistic about the prospects of global economy. There has been a lot of harping about what got us into the current mess. Together the blogosphere has painted a picture of gloom. And now that we have painted this dark tunnel it is time to paint the light and the end of it! It is time to decipher the solution to the crisis.

One of the reason great depression lasted as long as it did was because of delay in acknowledging the solution. The solution was always there - no doubt - but it took time for the solution to win over the decision-makers into coordinated action.

Thanks to globalisation and internet based coordination, we should be able to do it faster this time. If only we had the solution - or may be we do!

I present my side of solution in next few posts. Let us march towards a light - any light to begin with!

Defer the US debt!

What if China and Japan the major creditors of US reach an agreement to defer the US debt repayment. China and Japan own the largest set of US treasuries with certain interest rate. US needs cash to service the debt - in current situation this cash will be better spent on re-creating jobs. This is one type of response to a debt-default situation. Convert the debt into equity or preferred equity with payments deferred over time with a slight moratorium included.

I think this should be a good aim for US political establishment to start off the recovery process. It will be even better if China and other US creditors unilaterally take this stand.

Or possibly I am going nuts.

Which country comes out of slowdown earlier?

To understand this, I believe we can look at two metrics.

Capital waiting to be deployed could be a metric to understand how effectively can the wealth creation engine be primed. The current US consumption based wealth-creation will have to be rewired to domestic demand driven wealth creation. This is one reason why investors look for telecom and FMCG companies. They are better wired for such situations. But the real boost comes from entreprenerial activity that feeds into such sectors or creates new markets around such concepts. These entrepreneurs drive value creation and GDP growth. The question really is how much capital is available to be deployed into the economy. This consitutes available bank credit,

The second metric is effectiveness of the wealth distribution engine. We can call it multiplier effect. If an economy has enough structures to distribute the wealth creation across the population then better are its chances in current situation. Here, a consumption based economy like India would feature higher than manufacturing-export let China. But evaluating this factor is a little soft-factor based analysis.

Investors have figured out the first one and therefore rushing into China. Yet, most have very limited understanding on how the second factor works. I think both factors are necessary to create a push out of the slowdown. But given how connected capital is globally, I think the weight of second factor might be higher. What say ye?

Worst Recession ever!

The current recession is now definitely going to be worse than the Great Depression. The excesses that created the mess are being stretched beyond sustainability. Now even Niall Ferguson and Nouriel Roubini agree on this.

The main reason is US government, taking heart from USD's global reserve currency status, is priming the economy at an unimaginable scale. Taking the US example lot of countries are attempting a similar strategy. It would be important to note that this is not simply printing money but creating debt.

The current strength of USD is due to global slowdown. The world will soon realise that depending on US consumption is not going to happen anytime in near to medium term. As the relative strength of domestic markets start, we can forsee a battle for share of pockets of savers. This, to my mind, will be the begining of the end of US dollar.

Personal and Government indebtedness

The contextual relationship between balance sheet of citizens and their government, to my mind, holds the key to evaluating responses to current crisis. We see three main segregations:

• China and some developing countries – where both government and personal savings are high
• US and developed world – where both government and personal debts are high
• Countries like India – where personal savings are high but government is seriously indebted.
  

Keynes solution is meant for the Chinese situation. So Chinese are spot on with their solution. But it is still not clear if this will work in China. Keynes’ solution needs a robust wealth-distribution mechanism that China lacks. Therefore, we need to watch Chinese government actions keenly. Other countries with surplus will be better off if they have access to markets for their produce and Keynes-style stimulus will be the way to go.

For US and other developed countries, the same Keynesian solution will put their future in jeopardy. Beyond a certain tipping point, there will be a bigger crisis looming. It will start with Chinese stopping the US bail out. China is bailing out the US who is in turn bailing out most of the world. Surprising that Chinese want so less say in who gets their money. Possibly, they got a raw deal. Anyways, if China continues stimulating both US and domestic Chinese economy, it will end up like India! As the scale of stimulus or bailout increases, I get ever so more worried.

India is in further mess. It has the consumers who can spend but its government cannot do anything to stimulate the economy. So India will have to sit tight till domestic economy revives on its own. It won’t grow at a pace similar to past 2-3 years but it will still grow robustly. Indian slowdown is likely to be deep and short. After the initial bubble bursting, you will see Indian consumer wring his/her hand in despair and get about their normal trend-line consumption.

So in all, everyone has large problems.

Surviving the current crisis

Current crisis is going to test the best. It is going to strain finances to the brink of banckrupcy. So how can small businesses survive in this challanging environment? Simply put, using two rules. Cash is king. Stay humble - stay together. Let me elaborate.

Cash is King!

In any crunch / slowdown what matters is staying power. Cash gives you a fantastic buffer to outlast the crisis. Here are a few steps that can help conserve cash but remember each case is different - so careful with these.

Income Side

1. Diversify income streams: Now is the time to cross-sell ancillary stuff around your key products. Generally - lower cost items that enhance longevity of the product get better business in these times.
2. New Products? Remember the customer focus has changed from "saving time" to "saving cost"! In tough times objects not central to functionality are difficult to sell. So T-shirts about your brand are less likely to sell at premium. But smaller price point items that reduce cost for customers are desired.
3. Merchendise ads: It might make sense to sell merchendise at cost as a substitute for local advertising. (Caution alert)
4. Mittens with ovens: Give add-ons and make selling price reasonable. Be fair to all - be fair to youself in setting the price. Sometimes add-ons help - again things ancillary to the product use will get better sales. Give away mittens with ovens!

Cost side:

1. Know your costs: 10% discount if you by bigger lot - may not always be a good idea.
2. Cut costs like crazy: Reduce inventory, negotiate with suppliers for discounts.
3. Throwing away money? Reduce wastage, a lot of things can be reused - if not by you - by others who will pay for the stuff.

Employees or your team?

Big corporations are quite fast at reducing employee head-counts. In my view, this is a really wrong move - more so if you touted "employees are my assets" mantra. I believe employees are like players on your team. In such times rather than cutting employees - you can change payment terms. An employee taking home $1000 can now take home $500 as fixed cost + $500 as variable. For next 5 years base the variable on cash contribution to the business. And remember - pay-cuts go from top to bottom and hikes go from bottom to top.

Henry Ford v/s Greg Mankiw and real arguments for free trade!

Greg Mankiw, whose work and insight I really admire, argues against protectionism of Obama government. However, he does make the popular point - that lower Chinese Yuan helps keep cost of US consumption basket lower. Henry Ford turned this argument on its head and increased wages of his labourers so that they can afford to buy the cars Ford made. In the same vein, I think Americans would be happy to afford higher cost products and buy them rather than have low cost products that they cannot afford. To make it clear, I am not denying the beneficial effects of lower cost products. Just that the real argument for free trade is different.

US needs to keep the roads to China well-paved. Sooner or later the Chinese Yuan will appreciate against the US dollar. Then US will need China to keep trade barriers lowers to allow US access to Chinese markets. But that means keeping US trade barriers down in current scenario. Obama talk on protectionism might only serve to precipitate the currency regime change. But even just talk will be harmful for US interest in the longer term. Obama will do well to take up Wen Jaibao's free trade argument.

Inflation v/s Deflation

Cassandra has a post on Inflation v/s Deflation that highlights and links to some interesting points-of-views on the debate. The most interesting bit she quotes from Dr. Perrry Mehrling is:

Everything in the post is correct, and very much on the minds of every Fed watcher. The question is, what does it mean? I have what may be a contrarian view.

It seems to me that what we are seeing is simply the balance sheet consequences of the Fed's decision to take the wholesale money market onto its own balance sheet. Banks (and other entities) that used to lend to one another, are now lending and borrowing through the intermediation of the Fed. This is so not just domestically but also internationally (the huge swap line), since foreign banks used to fund dollar asset holdings in the dollar money market.

In this view, inflation seems much less likely. Why not? If the original wholesale money market borrowing and lending was not inflationary, then why should its substitute be inflationary? Indeed, the real question is whether the expansion of the Fed's balance sheet is keeping pace with the contraction of money market credit more generally. If not, then the consequence may be deflationary.

David Pearson argues in comments that inflation and deflation are also impacted by velocity. The arguments by Cassandra and David Pearson are interesting to say the least.

My thoughts are more aligned with fluid dynamics when thinking of money flow. This is not a laminar flow or a standard textbook turbulent flow. This is, to my mind, a special case of turbulent flow. I think big money will swamp certain markets testing the regulatory strengths of gate-keepers - while we have dry patches of liquidity crunch at some other places. The "tipping point" (as David puts it) is going to be realisation of true value of US treasuries. That will start a true "dance of the headless chickens" in the big-money space.

Capitalism Fundamentalist

I have often mentioned that the balance of power between corporates and citizens is misaligned. Naomi Klien in her book The shock Doctrine Rise of Disaster Capitalism tries to examine that same issue. Here is Naomi in interview with Charlie Rose. There are three different issues involved. First, corporations do get favoured status v/s the citizens and that hurts vast majority citizens to favour a few. Second, this is usually forced at the time of crisis. Third, usually government is the one that enables the favouring of status.

Naomi, further, gets into a debate with Milton Friedman's ideas. However, in certain areas, she does mention that she is simply against this collusion between governments and MNCs. Ithink this is playing wrongly on the word "shock" and mis-construing Milton Friedman. Kindly note that I do not fully endorse Friedman's policies but I agree about his views on difference between "intent" and "experience" of soft-hearted well-meaning policies. Austrian Economists has post on Milton Friedman's arguments against Naomi Klein in the video editing (there are 6 other videos if you like this one).

Charlie Rose asked her about India and China - she does mention about China but ignores India. India is real example as it followed the traditional middle-ground between socialism and capitalism. Indian constitution states the country as "socialist". And Indian experience shows correct example of her first quote "Only a crisis actual of perceived produces real change - when the crisis hits the change depends upon ideas that are lying around." India is a classic case of this being done in right fashion. Indian 1991 balance of payment crisis led us on reform path that has put more people out of poverty than 40 years of semi-socialist administration.

I believe she is correct in her observation of collusion between corporates and governments. I believe that this is being "streamlined" and this threatens the very roots of capitalism - as even Milton Friedman would argue. I am hoping that experts like Prof. Elizabeth Warren will restore this balance. I am hoping this "credit shock" will be a good time to "push this reforms"! :)

Monetary policy of China - is it a fault line?

Prof. Micheal Pettis is one of best commentators on China. His latest post on monetary conditions in China is a little scary. I have few points:

1. I don't think China will be able to undertake fiscal expansion to the scale required.
2. A monetary contraction is higly likely to impair Chinese financial system.

Essentially China is exactly where US was in Great Depression. The scale is different and scale can be China's enemy no.1! Further China agreeing to fund further US treasury expansion looks unreasonable. It will possibly compound the problems - as China cannot accept the entire lot US dishes out and retain enough capacity to wait it out. It is at this point fair income-distribution structure prevents social unrest. China will have to fix this urgently.

In sum, thats a whole lot of trouble heading China's way. Thankfully, Chinese government acts fast - let us hope it does so now as well. Else all the world is going to be in trouble!

Is Bernanke-Paulson outsmarting all of us by front-ending bailouts?

If bailouts are front-ended and funded through G-secs then at least US gets more money/treasury than it will at a later date. After the world discovers that US is going to default - no one is going to be ready to buy the treasuries and their prices will fall through the floor.

So in effect, Us will already have all the money they need to actually bailout the companies BEFORE investors panic. And then even if the world shuts its doors to US treasuries - so be it!

Its not unfair - but it is just saving your own skin!

Satyam and types of scams

There are essentially two kinds of scams

• First where money is siphoned off by paying higher to related parties as suppliers
• Second where profits are added to show higher performance - typically if pay is related to profits / share prices.

The interesting part of Satyam (assuming Mr Raju's statement to be true) is that it went from second type to first type scam. I think thats where it became unmanagable. I would like to believe it is an isolated case but I would not bet my money on this. Ajay Shah has interesting piece on three zones of corporate governance. Type 1 scam affects Zone I and Zone II in big way with large number of cases, less money involved, not easy to recognize for outsiders. Irony is that powerless individual investors are involved hence not much is impacted.

We are surely going to see more uncovering of scams in coming months.

Bullshit Promises

Professor Elizabeth Warren has a pointer on bullshit promises. Dr. Warren, my favourite on the subject, has been at it for quite a while now - battling powerful lobbies. Bullshit promises are about overtly promising something really appealing but actually using disclaimers actually promising exactly opposite - sort of trapping a consumer. Authors Curtis Bridgeman and Karen Sandrik dissect bullshit promises in great detail. Another of my favourite blogger, Yves Smith at nakedcapitalism, comments on key points.

One of the outcomes of this financial crisis I am looking forward is reversing this balance. For long we have corporate enjoying more benefits against consumers. Prof. Elizabeth Warren intends to change that. When she succeeds, we will have much better balance of power between buyer and seller that is core to revival.

Links:

Bridgeman and Sandrik Paper on Bullshit Promises

Elizabeth Warren pointer on Bullshit Promises

Nakedcapitalism on Bullshit Promises

2009: Images from the crystal ball!

It is that time of the year - December is here and so are the holidays. Again time to reflect on what is possibly in store for us in the next year. 2008 snapshots from crystal ball panned out pretty well. So here goes!

The monetary system

The monetary system is under terrible duress. With every central bank printing money - there is a great deal of money sloshing around. As of now it is just plugging the holes in the balance-sheets of the big-money operators. Soon this money will spread and it will create problems. However, we still cannot conclusively say if this will lead to inflation. Let me elaborate.

Inflation happens when buyers have too much money and sellers have too few products. It is often referred to as "too much money chasing too few products". 

Lets look at buyers. US, EU and to a certain extent Japan are biggest buyers. All except Japan, are in deep debt hole. Even if money were made available to these buyers, it is unlikely that they will buy. Most likely the excess money will go into debt repayments and savings. Also, I really have my doubts if the buyers will ever get that much money.

Now lets look at the amount of products available. This is a combination of assets and consumables. As a part of the past few years excesses, we have over supply of assets and substantial supply of consumables. In such a situation, it will be difficult to have inflation. 

The only way we can have inflation is if central bankers across the world collaboratively print whole stacks with gay abandon.

Demotion of US Dollar

Currently most of global wealth is held in USD. The de-leveraging has created an artificial strength for the Dollar. This is a concept a lot of analysts cannot cope with. This will cause as much confusion as "change of origin" causes in introductory trigonometry class. Devaluation of US dollar is a concept where the reference point has changed - and the analyst world will take some time to get its bearing on this. So the default argument is to turn a nelson's eye - ignore it. From the world of measuring the absolute (everything in USD terms) - we will move to world of relativity (everything relative to everything else). 

Emergence of "Wealth measurement anchor" is paramount requirement

What we need is to determine and accept a standard metric of value. Gold used to fit this scale earlier. We need to start using PPP determination as a denominator for value. So like in PPP measurement - we take a basket of goods and measure the currency's potency in terms of price of this basket. Just like Noah's ark carried sample species of all kinds, this basket must be representative across the world. On this basis we can measure wealth and arrive at a saner understanding of gain or loss of wealth. 

If all else fails - plain simple gold will do. But this will create a mega-mad rush for gold and create another scare.

Gold and Oil

If monetary environment isn't already complicated - Oil and Gold are adding to the confusion. These two commodities (and precious metal in a secondary sense) make up a set that is in demand globally. One is value retainer and other is a global necessity for economic growth. The prices of these commodities are denominated in USD. We are likely to see massive price correction in these commodities. Rather it is currency devaluation rather than commodity appreciation. So for investors whose wealth is in other currencies - it will be difficult of estimate the prices. Gold however should regain favour as value retainer and see increase in demand. Here are some links about gold price forecasts.

Corner the consumer - up the trade barriers!

There is going to be a great battle for consumers. At the moment, people are too busy looking for money to make the products. Soon people will be looking for consumers to buy these products. So saver countries (where there are lot of savers) will be expected to consume more to benefit producer countries. But this needs exchange rate management e.g.- China is looking to devalue its currency more than US. So we will see a lot of political hardball on exchange rates and tariff and non-tariff barriers. 

Potential for a global war!

While no-one else believes this and to some extent this often gets me ridicule, I believe a global war probabilities have increased significantly. These are not wars triggered by Mumbai attacks or some terrorist strikes. These are old-school wars based on conflict between creditors and debtors. Lord please give us saner politicians for 2009 and beyond.

Pay scales and organisation structures

Pay scales and organisation structures are going to see drastic changes. Firstly the pay-spread (difference in Cost-to-company salaries between CEO and lowest rung employee) will narrow. This is primarily because current financial crisis has put a focus on top management pay scales.

Further, the current recession will increase the need for special talent in corporations. These people will operate outside the organisations as consultants or temporaries. They will work on project basis and move to next companies. Mostly these people will work on organisation structure, costs and other non-intellectual property issues. Core intellectual property work will require in-house employees in classical organisations.

The main area of disruption will be the organisation structure itself. The structure will go through a radical change in the coming years and some sort of prototype should emerge in 2009. The difference between inventors, technicians, implementors and enablers will become more marked. For more details leave a comment for an e-book I co-authored with Anne McCrossan. 

This means that Private equity and consulting industries will go through a tremendous change. There is going to be a new wave of management jargon and it will be much more difficult to separate the wheat from the chaff. I suggest you look at Seth Godin as a new management guru (I know he writes about marketing - but look at Tribes - thats a management book).

In sum

We are looking at an exciting year ahead to say the least. We are looking at a new year where terrorists will have higher leverage (due to financial vulnerabilities), a possible war scenario and new financial and economic system. Lets hope we have the leaders to understand and guide us through this sensibly. So happy new year to all and make sure you savour every second of the celebrations! May peace be with us!

Would asset price fixing have solved the problem?

The response to the crisis has been fast and powerful. The question is - is it the correct response? As Percy Mistry puts it in his Financial Times column, the first montary expansion was directed at averting financial collapse. The second, the one thats currently underway, is about kickstarting the system - getting a consumption driven US economy to consume.

Was there any other way out of this? A possible way could have been US government fixing the price of housing across the country through use of a formula based mechanism. This would have paved a way to price the derivatives and resolve the matter between market participants hopefully without government intervention. Any derivative is first a derivative and gets priced as soon as the asset is priced with fair degree of confidence.

Guaranteeing the home loans at this prices could be a second prop. This would have protected the individual financial system by fixing the floor. 

Beyond this the government should let the financial system resolve itself. First the market participants should start from the floor price set by the government and price discovery will help establish a price level far lower than what we currently see but definitely higher than otherwise. 

This would have created a huge amount of collateral damage. Firms would have been wiped out but the markets would have continued to function because the value of underlying asset was known. But its possible that we would have avoided further cascading effects and impact on individual financials. In the end both will be equally costly - but this one would be much saner.

Now am I missing something here? Probably concurrent devaluation of overseas assets and mark-down of about 600 trillion of derivative positions into something equal to 60 trillion. This looks potential hunting ground for creative accounting standards. But this seems one interesting way. What say?

Links:

Ajay Shah blogs about Percy Mistry column Does anyone have a post recession exit-strategy?