Since the Bank Bailout was introduced on September 23, 2008, there have been many alternatives suggested to restore credit market functionality and save the taxpayer $700 billion. Since then, some of these proposals are being implemented, with limited success. Here is a discussion of many of them, and their probable impact.

Fed Loans to Businesses - On October 7, the Fed agreed to directly issue short-term loans for businesses that can't get it elsewhere.

The $1.6 trillion commercial paper market allows companies to pay for day-to-day activities such as payrolls and rent. The Fed has already lent $147 billion to Wall Street bond dealers and $152 billion to money market mutual funds (as of October 1). This keeps businesses from folding, but doesn't address the source of the crisis.(Source: Bloomberg, Fed to Purchase U.S. Commercial Paper to Ease Crunch, October 7, 2008)

Global Rate Cuts - On October 8, 2008, the Federal Reserve and the central banks of the EU, Canada, UK, Sweden and Switzerland cut their rates by half a point, while China's central bank cut its rate by .27 of a point. This was done to lower LIBOR, thus lowering the cost of bank borrowing. Overnight bank lending rates dropped in response, indicating a potential turning point in the crisis. (Source: Guardian, "Global rate cuts helps ease overnight interbank rates," October 8, 2008)

Create Credit Default Swap Clearinghouse - The Fed is creating a clearinghouse to regulate the $45 trillion credit default swap (CDS) market.

CDS provides insurance for mortgage-backed securities and bonds, but have lost value as loan defaults mounted and CDS issuers reneged on paying claims. Without trustworthy insurance providers, banks won't issue new loans. The clearinghouse should address one cause of the crisis, but won't be in place until December.

Suspend Mark-to-Market Accounting - Mark to market accounting has forced banks to write down the value of their subprime securities to their current value, which is near worthless since there is no market for them. Suspension of this rule would allow banks to retain some value, giving them more funds to loan. The SEC will complete a study by January 2009 - too late to ease the current crisis.

Treasury Buys Preferred Shares of Banks - Preferred shares gives the government ownership of banks without voting rights, and also means the government gets paid before stockholders. This gives another method of transferring government cash to banks without owning the toxic debt. However, this is what Japan did and it kept the banks stagnant because it never removed the bad debt. (Source: NPR, Finding Alternatives to Bailout Proposal, September 25, 2008)

McCain's Proposal - 2008 Republican Presidential Candidate John McCain has proposed having the government buy $300 billion in mortgages from homeowners who are in danger of foreclosing. This would help reduce the amount of toxic mortgages on banks' balance sheets, and may even help stop falling housing prices by reducing foreclosures. However, it would not address the immediate credit crisis, which is caused by banks being afraid to lend to each other and therefore hoarding cash.

Republican Study Committee - In opposing the Bailout, the RSC proposed suspending the capital gains tax for two years instead. This would allow banks to sell assets without being taxed, but it losses on assets that are the issue, not gains. The RSC would also transition Fannie Mae and Freddie Mac to private companies and stabilize the dollar - neither of which would address the credit crisis. On the other hand, their proposal to suspend mark to market accounting would help alleviate bank write-down of assets, which curtail their ability to make new loans. (Source: The Hill, RSC Pitches market-based alternative to bailout, September 23, 2008)

Do Nothing - Many have suggested to just let the markets run their course. This is most likely to create a global depression, as businesses around the world shut down due to lack of credit. This would lead to large scale unemployment, and a downward economic spiral.

Ideal Alternative - The ideal alternative would be one that was implemented immediately, was large scale, and probably requires a global government and central bank effort. Each of the alternatives that are being implemented help a piece of the problem, and eventually they will address the situation. The ideal alternative is to use this crisis as a wake-up call, and for every person to take responsibility for their own financial situation.