The blog Economic Darwinism has written a letter to Obama, our voices will be heard. In that light, I thought I would do a repost.

I’m sorry Mr President, but you do not have enough money to back stop all of these legacy assets. Drastic measures are needed and they are needed now. As incomprehensible as it may sound, I believe that you should consider using your Executive power to declare a national emergency. Seize the investment banks and give a blanket guarantee on existing bank deposits to avoid bank runs, while setting rates on new deposits close to zero to avoid draining foreign capital from other struggling countries. Halt the issuance of new CDOs. Impose a temporary 90% tax on all income in excess of $1,000,000.00 to temporarily reduce the need to raise funds from foreign central banks who are dealing with their own problems. Transfer all outstanding credit derivatives to an exchange and enforce punitive taxation on over-the-counter (OTC) derivatives transactions to encourage the swift migration to transparent exchanges, while offering substantive tax incentives for financial institutions who can demonstrate they have completely migrated and no longer participate in the opaque OTC derivatives market.

Your advisors will surely tell you that the OTC market should not be demonized and serves an important role in the market place. I say they are wrong and you should be looking for ideas outside of the establishment. I would be glad to argue my case for any of these proposals on a point by point basis. I would not suggest such radical measures if anyone other than you were in office. Your knowledge and personal conviction in the sanctity of the United States Constitution places you in a unique position to be able to make it work without destroying the foundations of this country.

If you don't believe him, Baseline Scenario is offering tutorials and this one is structured finance for beginners. He is showing the dependencies in many of these derivatives, which were assumed to not be (which is beyond me how anyone in their right mind would approve of such a model in the first place!) and that is where the real divergence between their zombie bank need to feed versus the underlying assets (i.e. the actual mortgages in default).

It is the derivatives market that is the infamous time bomb for which there is not enough money in the world, just like Humpty Dumpty, to put it back together again.