(1) The financial systems in the US and now in Europe are getting restructured very quickly. The weak financial institutions are either getting nationalized or acquired by strong ones, that are either explicitly or implicitly backed by government resources.
(2) Despite its flaws, TARP may work. The Treasury now has access to a large sum of money which can be used to set floor prices for troubled assets. That may revive trading activity in markets for these securities. Hopefully, the Treasury will target the most toxic troubled assets to remove them from securitized pools that have been poisoned by them.
(3) Perhaps the SEC, as authorized by TARA, will eliminate all ambiguity and officially declare that mark-to-market accounting has been suspended until the credit crisis has passed. The Europeans are considering doing the same soon. Sir David Tweedie, IASB chairman said last week: “The IASB is committed to doing its part in responding to the credit crisis and recognizes the need to provide additional and needed guidance on determining the fair value of financial instruments in illiquid markets. The SEC-FASB staff clarification on fair value accounting is a useful contribution, and our staff believes that it is consistent with IFRSs.”
(4) Central banks should succeed in propping up the money markets by acting as lenders of first resort. A coordinated round of rate cuts might also help to revive the money markets.
(5) Government insurance to back up all deposits and bank debts may also help to boost confidence in global banking systems. The Irish and Greeks did so last week. The Germans did so this weekend for bank deposits. On Friday, Britain proposed raising its own deposit insurance limits. The French and Italians may soon follow. The FDIC has increased its coverage from deposits up to $100,000 to $250,000.
(6) There is an enormous amount of liquidity parked in liquid assets with near-zero interest rates. Stocks are ridiculously cheap if the world isn’t coming to an end. When (and if) investors come to this conclusion, there could be a significant rally in stocks.
(7) Many emerging economies have accumulated significant amounts of international reserves, which they are bound to spend to keep their economies growing to avoid social and political unrest. This is especially true for China.
(8) Oil prices should stabilize around current levels if the global economy averts a major recession. That would still provide lots of revenues for oil producers. It would allow headline inflation to drop closer to core inflation. It would bring gasoline prices closer to $3 in the US.