It's very easy to correct this. 1 Billion at most.
CDO Derivatives have been invisible for years. No one knows what they are worth. Because they are not on an exchange, and publicly transparent. That is what these 'toxic assets' really are. CDO derivatives of all makes and models. Companies hold them on their balance sheets, but no one really knows what they are worth. They're not tracked. Someone quite literally - invents a number, and that's what everyone else is supposed to believe.
And the transparent markets have only one choice. Find out the truth. So in the face of a lie, risk pricing will assert the truth. That's putting the transparent markets in the role it's always held. Find the truth. No matter how destructive and horrendous that process is. If you try to hide it, the method of seeking out the truth through free market forces will be even more destructive.
I'll tell you when I'll start dispersing my 86% cash position to investing again? When I hear:
"We are going to take a billion dollars, and create a derivatives exchange for any sort of derivative, that is not currently tracked, day by day, on an exchange. Packaged up debt obligations? They must now adhere to new accounting regulations and be tracked, every single day, on an exchange where their value can be traded, or bought and delivered by anyone that is adequately funded. Anyone who currently holds a CDO or other debt derivative, has eight months to de-leverage according to the new accounting standards.
Oh, and by the way? Everyone that currently has a mortgage now has a 4.5% rate on their mortgage. Congratulations. Everyone else? Well, you get the best rate you can find, you're on your own. Banks start screaming about price fixing the rate? Well ... guess you guys shouldn't have been overleveraged huh?
Oh, and as an added little cookie? From this day forward? Any financial instrument that is invented, or can be devised of any type, anywhere that is either bought or sold, OTC or not? 11:1 leverage. Anything greater than that will result in a penalty of ..."
I'll leave the rest of that statement to the retributive imaginative minds of those who have suffered by ignoring so many of us who have called for a public CDO exchange for YEARS, and were told: Nah, we don't need that. Everything is fine. Trust us. If I heard the above statements? I'd be hopeful. Maybe even optimistic.
Fix the invisibility of the OTC derivatives.
Fix the over-leverage problem.
Fix the housing problem.
Very cheap, and it'd be very effective. Do that, and the problem can start working on an economic resolution and an economic bottom. Until then? Expect more deflation across the board. They are facing a hyper-deflationary spiral, the likes of which mankind has never seen (Anyone want to go back to the days of earning $1.00 an hour? A day?), and they still refuse to put the OTC derivatives on a transparent exchange.
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