Incentivize Recapitalizations and Reward Lending

To get the financial system to function again the regulators should come up with ways in which to :

1 - Incentivize Recapitalization of the banking sector. This can be done by a number of ways. Perhaps one way is for companies to guarantee share prices at which recapitalizations are done. Lets say company XYZ needed cash and decides to try to sell shares. Lets say potential buyers have the cash but are afraid to make a purchase because of fears of a stock drop which would cause losses. If company XYZ offers the share buyer a guarantee the buyer may be more likely to step in. The guarantee can work something like this: If the purchaser of shares makes a purchase then the share price will be guaranteed for one year. If the price goes below the offering price at any time on a closing basis over the 12 months following the purchase then company XYZ will make up the difference by offering the buyer more shares or cash. This will likely help convince buyers to step up and buy shares. It may even create a stampede for anyone who wishes to buy the stock. To make this a fair offer, all shareholders should be allowed to participate.

2 - Reward lenders for lending out there cash.

What those incentives could be is an important question and needs to be examined more thoroughly.