Great post NDD, I hope you won the challenge. These are common sense solutions predicated on an honest evaluation of where we are and how we got here. I have wondered for months why at least some of these were not implemented, even on a temporary basis, in conjunction with the repeated bailout measures.

What I suspect (and probably many others here would agree) however, is that Wall Street will write the "new" rules. The conspicuous involvement of Goldman Sachs at so many turns in the evolution of this crisis is a giant alarm, as far as I am concerned. Earlier today I posted this comment in another thread here. It is unconscionable to me that naked default swaps would, or should, be allowed.

All I heard from Geithner today at the HFSC hearings was an attempt to attain more power to act unilaterally and completely circumvent Congressional oversight. If I could add one other item to your approach, the Federal Reserve Act of 1913 should be revised and the FRB should become a part of the Treasury.

Backs up their risk with military power, which is forbidden to individuals.
Of course, that's sovereign government, or government by and for the people. Government purchased by corporations works somewhat differently because corporations would rather change the laws to eliminate risk rather than actually *USING* the results of risk.
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Moral hazards would not exist in a system designed to eliminate fraud.

Unemployed Americans want their jobs back from India and China. Obama promised that he will bring back our jobs. It looks like his phone buddy Bill Gates got to him. Forget about the American middle class they don't need those low paying jobs. They just need high paying Green Jobs. The only green jobs out there are landscaping and selling marijuana. Sometimes these politicians really think they can sell us the Brooklyn bridge. Extremely disappointed with Obama.

... it is denominated in someone else's currency.

That's when you get the scenario of larger amounts of local currency needs to meet overseas obligations, driving down the exchange rate, leading to larger amounts of local currency to meet overseas obligations, when the external balances are out of kilter and there is no real sustainable way for the country to acquire the foreign exchange to meet those debt obligations.

US sovereign debt is almost entirely in US$, and so while the exchange rate may slump, and we face the risk that in the future we may have to issue sovereign debt denominated in foreign exchange, if the US$ loses its status as the global reserve currency as the result of national financial mismanagement ... we do not face any immediate prospect of that kind of sovereign-debt exchange rate melt-down which is followed by default.

And given the severity of this recession, demand-driven inflation is no serious risk for this year and, if we hit the trough before the end of this year, for next year either. And if we don't hit the trough by the end of this year, the risk is almost entirely the much more serious risk of deflation.

Most "zOMG hyperinflation" is based on Milton Friedman's monetarist theories or some variant of them, and have nothing to do with the actual creation and disposal of money in the real world. Real World hyperinflationary episodes ...

... Zimbabwe right now, Argentina this decade, Brazil in the 80's, the Weimer Republic with its export markets to the east destroyed by WWI and heavy foreign-currency denominated reparations payments, the Confederate hyperinflation as cotton bonds lost their status as investment grade assets in London over the course of the Civil War ...

... have been economies with the structural external imbalances that have not had the luxury we have had of being able to sell large volumes of debt denominated in our own currency.

What makes you think that the government (which was complicit in the entire CDS debacle) is any more able to manage risk than individuals?

The only investments that can be called "our investments" are those undertaken by the government.

And what I'm saying is that perhaps we need an entirely different system- where investment is done by the government alone, since the markets seem to be unable to actually handle risk.

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Moral hazards would not exist in a system designed to eliminate fraud.

yep seeb!
The problem is that the world had become a global group... it is not a sum of the countries anymore. Group theory says group is its own worst enemy. Individual countries like USA are sticking to the global group, following the global tendency, borrowing assets from the global group, purchasing goods and services from the global group, even training member elements of the global group and delivering goods and services to the global group. What they fail to understand is that the answer to a problem can't be found inside the system which created it. You have to, either introduce an alien element to the group in order to solve the problem or get out of the system which created the problem, hence the answer is: go away from the global group…. Get out of the crowd.

They have determined that they will be bailout regardless so, if true, why not take more risks - they got nothing to lose and everything to gain at our expense.

Or we do things the other way- by actually diversifying our investments so that if one investment goes down, no big deal.

The only investments that can be called "our investments" are those undertaken by the government. Other than that, there are only "my investments", "your investments", and "his investments". Diversification is not a cure-all. Many small business owners have no way to diversify, all of their capital is tied up in that business. Farmers literally "bet the farm" on each year's harvest. And corporations focus their efforts toward their core competencies. They need some form of insurance, as it makes no sense for these people to diversify away from the areas where they are strongest.

I'm not defending the current state of the CDS market. It is a shameful example of hubris and shortsightedness. But, in order to have a modern and efficient economy, there must be some way to transfer risk to those who are most willing and able to bear it. That is what insurance does.