1. Treasury (Treas) offers to buy illiquid assets that pass its validity vetting at a lowball miniprice, with a buyback option for seller. Offers to buy are valid for a limited period — say 3 months from date of start’s announcement; buyback options are exercisable for 5 years.

2. If any fraudulent or purely junk assets are offered, all assets in the group being offered are rejected by Treas in an offer-vetting process. Groups of illiquid assets that pass vetting are purchased by Treas for a fixed miniprice of 10% (or 20% at most) of face value.

3. Seller receives cash from TARP fund together with a special TARP Buyback Option (TBO) for each group of assets sold. A TBO has an expiration date of 5 years from date of issue, and a unique certificate number is assigned, referencing it to the particular group of securities sold. Treas creates a market to enable trading of TBOs between financial institutions and other investors.

4. Exercise of a TBO provides repurchase by the TBO holder of the same group of securities that was originally sold at the same low miniprice as the original sale to Treas, plus any return of capital collected by Treas from the original date of sale to the TBO Exercise Date. Treas retains only the interest collected during the Treas holding period. Cash paid for exercise of TBOs is returned to TARP fund.

5. SEC provides a special ruling ONLY FOR TBOs, WHOSE UNDERLYING SECURITIES HAVE BEEN VETTED BY TREAS. This special ruling, to be valid only for three years following its announcement, would permit the holder of a TBO to estimate its fair or intrinsic value AND INCLUDE THIS VALUE ON ITS BALANCE SHEET during the three-year period prescribed by the ruling. In this way, a bank’s capitalization is significantly improved to reflect both the cash initially received from Treas for a small portion of the value of the group of illiquid securities sold at a low price, and for the balance of the value as estimated by bank management for the corresponding TBO. This effectively would leverage the low price of the original sale to the full estimated value of the assets. Such a SEC ruling is key to gaining acceptance of the holders of illiquid securities for such a small (only 10% of face value) sale price, and its limited three-year operability is key to having most buyback options exercised sooner than the 5-year expiration so the TARP funds initially paid out by Treas can be returned to it sooner rather than later.

6. By limiting the special ruling from SEC (see 5. above) that restricts its application ONLY FOR TBOs, WHOSE UNDERLYING SECURITIES HAVE BEEN VETTED BY TREAS, opportunity for fraud and misrepresentation of spurious or totally worthless securities is minimized. (An alternative proposed cure that would allow any and all illiquid securities to be priced at the whim of any management holding them would insure future financial system afflictions far worse than the current disease. Except for the special case of illiquid TBOs, relaxation of “Mark to Market” rules would invite eventual corruption not only for banks but for other corporations that would demand the same relief.)

7. As the assets underlying a TBO approach maturity and as the financial crisis subsides, the holder of a TBO will recognize that its increasing value represents a real bargain. This can be procured only upon exercise of the TBO, and holders will do so surely prior to its expiration at the end of the 5 year period. This will return to the TARP fund most of the cash initially advanced by Treas during the initial purchases, thereby greatly limiting taxpayer risk. Even if no TBOs are exercised, a very unlikely possibility, at a lowball 10% purchase miniprice, $1.0 Trillion of assets can be covered with only $100 Billion of taxpayer funds at risk, far less than the $700 Billion fund being requested.

8. Upon expiration of the 5-year TBO exercise period, any residual securities remaining from unexercised TBOs can be auctioned by Treas, and the proceeds, if any, are returned to the TARP fund for the benefit of taxpayers.

9. Because such minor taxpayer funding is at risk, it should be possible to implement this “Minipriced Asset Sales with Buyback Options” (MASBO) approach while resisting demands for extracting taxpayer benefits such as options, preferred stock, and warrants, etc. that would socialize and partly nationalize the US Financial System.

M. Robert Paglee, Moorestown, NJ

It wasn’t Democrats that dropped interest rates to levels low enough to drive this mechanism, although they certainly led cheers. Both parties remain irrelevant to the real solution to the credit crisis, which is to seize the insolvent banks, repeal the Federal Reserve Act, and for the US to issue greenback currency, and to repudiate the usurious and predatory Fed monetary debts that have overloaded American, and global, productive economies.

When that happens, after this bailout fails dramatically, and the banksters make a run for borders with hot cash stuffed in their pockets, it will be undertaken by a third party composed of Americans utterly disenfranchised by both parties who have participated in, and driven, the corrupt practices resulting in the present crisis.

As for the leadership of both the Republicrats and the Demoblicans, lynching is too good for them. The laws they have drafted regarding bankruptcy, rendition, surveillance, and ‘aggressive interrogation’ will hopefully be applied to them in full measure during the reformation of our economy, and the recompense for the crimes committed that led to this crisis.