The problem is that the balance sheets of these institutions are full of worthless derivatives.  These institutions themselves don't hold the bad loans.  The piece that needs to be in place is the solution for the holders of the subprime mortgages, which in turn requires a solution for the borrowers.  I can't imagine what tracing all the paper back to the mortgages must be like.

The other piece I would like to see is a retroactive repeal of the prohibition of states bringing suit against national banks for predatory lending.  

"Frank, who has been in phone discussions with Paulson, said the secretary appeared receptive to adding some foreclosure-relief language. The second Democratic proposal -- to impose compensation limits on Wall Street executives -- is meeting more resistance."

We may just have to settle for technology upgrades for the health care system, ban the denial of insurance coverage for pre-existing conditions, allow importation of Canadian prescription drugs and have Obama's National Health Insurance Exchange as industry watchdog.  The big piece in the National Exchange is the public insurance/Congressional benefits package but I don't know how we're going to pay for that if we need the money to pay down the gaping deficit.  

In the coming days, I will more closely examine the details of the Treasury and Fed proposal, and as I do, I'll work to ensure that it provides an effective emergency response by including four basic principles that my economic advisors and I just discussed this morning.

First, we cannot only have a plan for Wall Street. We must also help Main Street as well.... In the same bipartisan spirit that is being shown with regard to the crisis on Wall Street, I ask Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families -- a plan that would help folks cope with rising gas and food prices, spark job creation through repair of our schools and roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes, and provide retooling assistance for America's auto industry.

The second principle I would like to see in the emerging plan from the Treasury and the Fed is that our approach should be one of mutual responsibility and reciprocity. It must not be designed to reward particular companies or the irresponsible decisions of borrowers or lenders. It must not be designed to enhance the personal gain of CEOs and management.

Third, this plan must be temporary and coupled with tough new oversight and regulations of our financial institutions, and there must be a clear process to wind down this plan and restore private sector assets into private sector hands after restoring stability to the system. Taxpayers must share in any upside benefit that such stability brings.

Fourth, this plan should be part of a globally coordinated effort with our partners in the G-20.

...We did not arrive at this crisis by some accident of history. What led us to this point was years and years of a philosophy in Washington and on Wall Street that viewed even common-sense regulation and oversight as unwise and unnecessary; that shredded consumer protections and loosened the rules of the road. CEOs and executives got reckless. Lobbyists got what they wanted. Politicians in both parties looked the other way until it was too late. And it is the American people who have paid the price. The events of this week have rendered a final verdict on that failed philosophy, and it will end if I am President of the United States.

I agree with Krugman that regulations have to be put in place but that will take time, a lot of time, to decide what they are. In the meantime things could go so far south we might resemble the Titanic so we must stop the bleeding fast.

There is one issue Krugman brings up I am not sure I agree with. And that is the government having to pay a higher than market price for the securities for this thing to work. If they are bought at a discount, which they should be, two things will happen. One is as the market rises from the ashes the securities could turn a profit in which case it would cost us taxpayers nothing. And two the financial companies don't have to get face value for the securities for investors to feel comfortable as Krugman says. All the financial companies have to do is dump a large enough dollar amount off their books leaving them to only have to write-off the balance which would put them in good shape even if they have to claim negative profitability in the short term as a result. It is in everyones best interest to keep them afloat including the people whose jobs rely on them.

Further Saudi Arabia, the Chinese and host of other wonderful nations will OWN THE US.