Wall Street is begging for government life support. Unfortunately, we need to acquiesce to avoid another 1930s-style Depression. But Wall Street has to accept in return a revived regulatory system that would promote financial stability and the well-being of the majority. Here are four observations and proposals, intended to apply to all US financial markets and institutions, whether banks, holding companies, hedge funds or variations thereof:

1. The bailout doesn't have to cost taxpayers $700 billion. The most cost-effective way to finance the bailout is for the Federal Reserve, not the Treasury, to buy the bad debt from distressed financial institutions. If the Fed, as opposed to the Treasury, buys the bad debt, the funds don't come out of taxpayers' pockets but from the Fed's power to create money. This may seem like alchemy. But in fact it is simply a variation on what the Fed does normally--in conducting day-to-day monetary policy and in managing financial crises. Last year the Fed bought $840 billion in government bonds outright from US banks. As recently as September 19, the Fed announced plans to purchase short-term debt obligations issued by Fannie Mae, Freddie Mac and the federal home loan banks as a way to "further support market functioning." The Fed can later resell the bad debt to private dealers, albeit at distress-level, cut-rate prices. In any case, the funds to transact these operations will not have to come from taxpayers.

2. Tax speculators. A small sales tax on all securities transactions--stocks, bonds, derivatives, mortgage-backed securities, short sales and all new schemes--would raise the costs of speculative trading and therefore discourage casino capitalism. At the same time, the tax will not discourage investors who intend to hold securities for a longer period since unlike the speculators they will be trading infrequently. This tax could generate, conservatively, $100 billion per year in government revenue--enough to cover, for example, a green investment program that could create 2 million new jobs.

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