Australia Leads The Way

The Aussies seem to know what's at stake here. They are issuing a blanket guarantee for all bank deposits for the next three years.

The government will also guarantee all term wholesale funding by Australian banks operating in international markets and it will inject $4 billion (U.S. $2.6 billion) into residential-backed securities to help shore up the Australian mortgage market.

Compared with the United States, Australia has handed out few sub-prime mortgages, according to CNN affiliate Seven News Sydney.

Banks are heavily regulated and the country has financially benefitted in recent years from China's demand for its mineral resources, Simon Robson of Seven News told CNN.

Australia is in much better financial shape than we are here in the US, and its guarantees on deposits and wholesale funding that will help to restore confidence.

The US needs to do the same thing immediately. Raising the FDIC insurance limit to $250,000 for 15 months isn't going to work, a good 30% or more of deposits will not be covered by this. It's these long-term illiquid deposits like CDs held by older folks and small businesses that are vulnerable right now. These assets are going to eventually be moved to places where there IS full blanket protection.

In fact, all the G7 countries should offer this as of today. Those who do will be in much better shape. Those who do not will be in serious trouble as capital flows out of those countries.