revisiting what needs to be done to end the credit 'panic'

the increasingly lame current administration must take two steps immediately to quickly halt the unending, enervating credit crisis: shore up the anemic dollar and, for the time being, suspend "marking to market" those new financial instruments, such as packages of subprime mortgages.

the weak dollar is pummeling equities, disrupting the economy, distorting global trade and giving hundreds of billions of dollars in windfall revenues--through skyrocketing commodity prices--to our adversaries such as iran and venezuela. not since the carter administration has the us had a president so oblivious to the damage done by an increasingly feeble greenback.

the fed can rally the markets for a day or two by finding some new mechanism through which to lend more money to banks and other financial institutions. the administration acts as if the dollar were like the sun, its rising and falling beyond any control. countless times experience has shown that notion to be false. the us treasury department could buy dollars in the currency exchange markets. our allies lies would gladly cooperate with such an operation; their exports are being hurt more and more. the fed could even mop up some of the excess liquidity it has created since 2004, even as it makes targeted loans to beleaguered banks and financial houses.

the other measure: the treasury department and the fed should get together with the sec, the occ and other bank regulators and announce that financial institutions for the next 12 months will no longer write down the value of exotic financial instruments (primarily packages of subprime mortgages). instead, writedowns will occur only when there have been actual losses on those assets. if a mortgage defaults, a bank will then--and only then--recognize the loss.

it's preposterous to try to guess what these new instruments are worth in a time of panic. such assets are being marked down to increasingly arbitrary low levels. but when a bank books such a loss, it must replenish depleted capital, even though cash flows for most financial firms are still positive. worse, when forced by panicky regulators and lawsuit-fearing accountants to write down the value of these securities, institutions will dump assets in a market where there are temporarily few or no buyers. the result is a spiraling disaster. so let's have a time-out on markdowns until we actually have real experience in what kind of losses are actually going to occur.

these two steps would quickly end the panic.