A better idea.

The administration is rethinking the bailout that it crammed down Congress’ throat just a few days ago.

Now, they are considering emulating the British solution by partially nationalizing banks that are in trouble. This looks like a much better plan. One, it reduces taxpayers’ risk, and two, it provides a better return on investment for the Treasury.

But it needs to be combined with help for the mortgage liquidity problem.

As I suggested on Thursday, the Bank of America prototype makes sense. Since virtually all of the “toxic” mortgage-backed bonds and their underlying non-performing mortgages have already been “marked to market,” they should be recast to adjust the balances and terms to match home values and borrowers’ incomes. That will make the bonds and mortgages good investments again, which will return liquidity to the market.

A coordinated response.

The Group of Seven finance ministers are discussing responding to the market woes in a coordinated fashion. Hopefully the response will truly be coordinated and won’t be “too little, too late.”

The ongoing financial meltdown has had one positive effect. It has shown that the economists have been right all along. The world’s economies are connected, much more so than many believed or admitted to. We now know for sure that we’re all in this together and it is essential that all countries acknowledge this fact. The denial is one of many aspects that lead up to the current problems. We must not let this happen again.