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Thursday, 26 February 2009

Four Simple Steps to Resolve the Financial Crisis and Boost the Stock Market

President Obama, Fed Chairman Bernanke, Treasury Secretary Geithner, politicians, economists, strategists and pundits everywhere are doing back-flips trying to find a solution to the banking crisis and resulting stock market meltdown.

But Jon Najarian, president of OptionMonster.com, says there are some simple steps policymakers can take to at least alleviate the crisis and give the stock market a big boost:

* Cut taxes by 10% across the board for corporations and individuals alike: Najarian is a big believer in the healing power of tax cuts but admits it's highly unlikely any tax cuts will be enacted beyond what's in the stimulus bill.

* Raise the FDIC insurance limit to $1 million per account: FDIC insurance was temporarily raised to $250,000 per depositor in October. Najarian says raising it further will bring more capital into the banks - and out from under mattresses - both helping shore up the banks and providing them a base in which to lend. He also advocates for SIPC insurance on cash in security accounts to be raised above the current $100,000 limit.

* Suspend mark-to-market accounting: Critics say suspending mark-to-market accounting would reward banks for their bad behavior, and send a message that toxic assets are merely "temporarily" depressed vs. permanently damaged. Supporters say it will give the banks "breathing room" to sell those assets at something other than rock-bottom prices. Najarian does believe Secretary Geithner will announce an at least temporary suspension of mark-to-market sometime in 2009, spurring a huge rally in beleaguered bank stocks. (Personally, I think the government should put insolvent banks into receivership; but since it appears that's not in the cards, suspending mark-to-market makes sense in order to give banks some balance sheet relief and get more bang for out bailout bucks.)

* Reinstate the uptick rule: Because stocks trade in penny increments, reinstating the prohibition against shorting a stock on a downtick might not have much practical impact, Najarian says. But there was no good reason to get rid of the rule and reinstating it could do wonders to revive confidence in the market, which may be more than half the battle.

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