Please feel free to add to the list of alternative plans in the comments section.  Also, please make it  known what you believe is the best potential solution or slowdown for the financial and credit crisis we face.  Thank you.

House Progressive Caucus-

1. ....we support the enactment of a financial transaction tax equal to one quarter of one percent (0.25 of 1%) on all U.S. stock trades and more exotic transactions such as credit default swaps, options, and futures. This would raise approximately $150 billion/year. In addition, we should amend the tax code to prohibit the tax deductibility of executive compensation in any company where the highest paid corporate officer exceeds the compensation ofany employee by a ratio of greater than 25: 1.
2. ...the federal government and U.S. taxpayers, by extension, must be provided equity shares in any ofthe companies and financial institutions that benefit from the proposed bailout.
3. ...major bankruptcy reform must be included. As this bailout plan is implemented, assets are evaluated, and the financial sector rebounds, top priority must be given responsibly to helping current homeowners renegotiate their mortgages on manageable terms.
4. it is also very important that the financial bailout legislation under development safeguard consumer rights, provide tough, independent oversight, and establish a transparent, effective, 21 st century regulatory regime for the financial industry in America that will prevent any future repetition ofthe current Wall Street calamity.

 

Thom Hartmann:

"Create an agency to fund the bailout, loan that agency the money from the Treasury, and then have that agency tax Wall Street to pay us (the Treasury) back. It's been done before, and has several benefits. In the United Kingdom, for example, whenever you buy or sell a share of stock (or a credit swap or a derivative, or any other activity of that sort) you pay a small tax on the transaction.

We did the same thing here in the US from 1914 to 1966 (and, before that, we did it to finance the Spanish American War and the Civil War). For us, this Securities Turnover Excise Tax (STET) was a revenue source. For example, if we were to instate a .25 percent STET (tax) on every stock, swap, derivative, or other trade today, it would produce -- in its first year -- around $150 billion in revenue. Wall Street would be generating the money to fund its own bailout."

He also goes into some detail on how bailouts, historically, have not worked.


Luigi Zingales:

"Since we do not have time for a Chapter 11 and we do not want to bail out all the creditors, the lesser evil is to do what judges do in contentious and overextended bankruptcy processes: to cram down a restructuring plan on creditors, where part of the debt is forgiven in exchange for some equity or some warrants. And there is a precedent for such a bold move. During the Great Depression, many debt contracts were indexed to gold. So when the dollar convertibility into gold was suspended, the value of that debt soared, threatening the survival of many institutions. The Roosevelt Administration declared the clause invalid, de facto forcing debt forgiveness. Furthermore, the Supreme Court maintained this decision. My colleague and current Fed Governor Randall Koszner studied this episode and showed that not only stock prices, but bond prices as well, soared after the Supreme Court upheld the decision. How is that possible? As corporate finance experts have been saying for the last thirty years, there are real costs from having too much debt and too little equity in the capital structure, and a reduction in the face value of debt can benefit not only the equityholders, but also the debtholders."

John P. Hussman, Ph.D:

1.Public funds must function to increase the capital of distressed financial companies, not simply to take bad assets off of the balance sheet at market value (which may improve the "quality" of the balance sheet, but does nothing to improve the capital cushion and therefore little to avoid future runs on the institution).
2) In return for these funds, the government should NOT take equity (which is a subordinate claim and also creates potential conflicts of interest), but instead should take a SENIOR claim that precedes not only the stockholders but also the senior bondholders in the event the company defaults anyway. Congress may need to make some modification to existing bankruptcy law or provide for expedited bondholder approval to do this, but essentially, the government's claim should be subordinate only to customers in the event of default, and senior to both stockholders and bondholders. However, it should also be countable as capital for the purposes of satisfying bank capital requirements.
3) Ideally, the rate of interest on such funds should be relatively high (which will encourage these firms to substitute private financing as soon as possible), but actual payment should be made once the firms are again profitable so that the payment burden does not weaken them during the present recession.
4) The bill should allow for expedited bankruptcy resolution for these institutions, so that in the event of failure, the "good" bank (all assets and customer liabilities, but excluding debt to bondholders) can be cut away and liquidated to an acquirer as a "whole bank" sale. For nearly all of these institutions, the debt to bondholders is far more than sufficient to absorb any losses even in the event of bankruptcy. The current difficulty is that the bankruptcy process itself draws out the process of taking receivership, cutting away the good bank so that it can be sold to an acquirer, and delivering the proceeds as a residual to bondholders. Streamlining that process is one of the best ways to ensure that the failure of one institution does not have "systemic" effects.
5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount. In other words, the homeowner receives a substantially lower mortgage balance and payment burden now, but the lender stands to be made whole over time through property appreciation rather than immediate burdens on the homeowner to make payments.

Overviews of Bill King, Bebchuk, and Roubini can be found here.

James K. Galbraith:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html

"...why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund -- a cosmetic gesture -- and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary -- as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can't save everyone, and those investors aren't poor.

.....Reenact Richard Nixon's great idea: federal revenue sharing. States and localities should get the funds to plug their revenue gaps and maintain real public spending, per capita, for the next three to five years.

....Also, enact the National Infrastructure Bank, making bond revenue available in a revolving fund for capital improvements. There is work to do. There are people to do it. Bring them together. What could be easier or more sensible?

 ....If you need a revenue source, impose a turnover tax on stocks."

Senator Bernie Saunders

1.  Ensure that middle income and working families are not the ones who are paying for this bailout by Imposing a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would raise more than $300 billion in revenue over five years; Ensuring that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and Requiring that taxpayers receive equity stakes in the bailed-out companies so that the taxpayers’ assumption of risk is rewarded when companies’ stock goes up. Taken together these three provisions will substantially reduce the likelihood that this bailout will end up on the backs of average American taxpayers. I

2.Include a major economic recovery package which puts Americans to work at decent wages. Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy. Further, we must protect our must vulnerable families from the very difficult times they are experiencing.

3. Repeal the disastrous de-regulatory legislation that facilitated this crisis.

4.End the danger posed by companies that are “too big too fail,” that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. We need to determine which companies fall in this category and then break them up

Joseph E. Stiglitz:

"There are alternatives. Warren Buffet showed the way, in providing equity to Goldman Sachs. The Scandinavian countries showed the way, almost two decades ago. By issuing preferred shares with warrants (options), one reduces the public's downside risk and insures that they participate in some of the upside potential. This approach is not only proven, it provides both incentives and wherewithal to resume lending. It furthermore avoids the hopeless task of trying to value millions of complex mortgages and even more complex products in which they are embedded, and it deals with the "lemons" problem--the government getting stuck with the worst or most overpriced assets. Finally, we need to impose a special financial sector tax to pay for the bailouts conducted so far. We also need to create a reserve fund so that poor taxpayers won't have to be called upon again to finance Wall Street's foolishness."

Thomas Ferguson & Robert Johnson

"You could simply take a leaf from the New Deal and do a bank holiday. That is, send bank examiners into all the institutions-- investment houses, and insurance companies and the other major players, as well as banks--to assess them. Insolvent ones are simply closed; everyone knows then that those that survive are solvent. Economic life restarts. The total cost is minimal.

...The government could inject capital directly into financial institutions with a reasonable prospect of survival in the long run. This was the essence of Senator Schumer's proposal that surfaced just ahead of Paulson's announcement and that triggered the rally in world financial markets. The New Deal did this, too. It used the Reconstruction Finance Corporation, which put severe terms on the banks receiving the aid. Wall Street, of course, would love the money, but not the terms.

...There is absolutely no reason why some of the gains accruing both to private investors in the companies directly being bailed out and the broader market cannot be recaptured for taxpayers whose money makes it all possible.

...It also makes sense to insist that firms receiving aid issue senior debt to the government with rights over all other bonds, etc., they have outstanding. That's to make sure some money comes back right from the start and that managements cannot keep all the earnings for themselves by reducing accounting profits and paying themselves more.
...To recapture some of the broader market gains flowing from the injection of public money, one could place a modest new tax on interest, dividends, capital gains.

...And finally, obviously, it is necessary to re-regulate."

Senator Chuck Schumer:

Schumer suggested that fees levied upon all financial market players of sufficient size--regardless of their participation in the rescue program--could be used to bankroll an account akin to the FDIC’s deposit insurance fund. Schumer said he would consider pushing such a proposal this week as Congress continues to consider emergency legislation proposed by Paulson.

“One of the things I've thought about is whether we shouldn't create an insurance fund similar to the FDIC for the whole financial system,” Schumer said at the hearing. “All firms over a certain size would pay, not small little community banks, but everything else. They would pay a fee, not too onerous or too large, but over time it could help to fray the cost of any losses that we might suffer.”

“It's the financial system that has the trouble and the taxpayers are bailing it out, as you say, in part because it will help the taxpayers. But why do the taxpayers have to do the whole thing?” Schumer asked.

In response, Paulson indicated he was indeed thinking of ways the private sector could be tapped to defray the costs of the current proposed rescue, as well as future ones. "One way, as you mentioned, would be some kind of broader, industry-wide tax," Paulson said to Schumer.

Schumer also asked Chairman Bernanke whether he would be open to creating such a fund, and received a positive response. "Potentially, yes," Bernanke said.