The confidence in the financial markets across the world has been badly shaken. Almost all the countries are embarking on adapting possible measures to mitigate the damage. IMF in its recent Global Financial Stability Report (GFSR) came up with few principles that could form the basis for designing the measures for a restoration of confidence in these exceptional circumstances (i dislike to admit it as "crisis"). They are:
1. Measures should be comprehensive, clear and operational procedures have to be transparent.
2. Measures taken by the countries across the globe should be consistent in order to maximize their impact while avoiding the adverse effects on other countries. (such as competitive devaluation of the respective currencies should be avoided)
3. Ensuring rapid response on the basis of early detection of strains. This requires a high degree of coordination within each country among the different set of authorities and in many cases across borders. (The acomplishment of this principle would have saved the edifice of the Northern Rock as it has been effectively done by the rare coordination of authorities in India in avoiding the possible Run on its second largest bank)
4. Measures adapted by the governments across the world should assure that the current interventions are temporary and taxpayers interests are protected. Governments should be accountable to all its stakeholders and conditions for the support (by way of bailouts) should include private participation in downside risks and taxpayers participation in upside benefits. Intervention machanisms should minimize possible moral hazard problem.
Additions and constructive comments are encouraged!!