That's what they should do. I don't see why it hasn't been done earlier. The Fed and other central banks should become the interbank lending market and also lend to every large company that needs it. Lenders would lend to the Fed with a guarantee of being paid back , Fed would lend to those with borrowing needs. Do this for all type of lending, CP, long term debt etc. Also we should do away with mark to market accounting, firms would post results in two formats one with an estimated fair value of assets and another based on mark to market but with amore flexible method of accounting when there is no market. Rating agencies would work on the basis of the former Guarantee all bank deposits. Shut down the CDS market over time, along with other OTC derivatives that were only created for bankers . Reintroduce the uptick rule, a nickel spread, , along with a downtick rule to buy. And 10 % circuit breakers for stocks on the upside and downside, in this way once circuit breakers are in effect only X number of transactions can take place in a given time period in a given price deviation. Same circuit breakers for futures. That would be short term fixes, after that you take care of future bubbles with reforming the Fed and the housing market (to continental Europe model).
How about we force the sale of all of these crap contracts at firesale prices and get done with it. Then we cleanse the system of all the crap overleveraged companies in one day. Then we can start the process of recovering immediately.
if you put ALL the supply of everything on ONE day the price would literally be zero and the stock market would follow.
I would claim that a lot of these institutions are worth $0. Better that we find out now, than have it drag on forever.
I understand reintroducing the uptick rule with a penny spread will not be optimal since too many different trades are executed at any given time and a higher price of just a one cent will allow a new short sale.