Former treasury secretary Paul O’Neill served from 2001-2002 when he resigned from the Bush Administration. O’Neill’s business acumen is almost legendary as he was the executive that led multinational Alcoa in a case study still used at Harvard Business School as an example of inspired corporate leadership.

O’Neill’s concerned about the economy though he’s correctly suggesting that the current issues pale when compared to the massive – some 43 trillion – in unfunded liabilities congress and the president have smilingly absorbed over the last few decades. O’Neill suggests that if we don’t get our financial house in order soon we are in for trouble that makes today’s problems look like a walk in the park.

O’Neill has offered what seems to me the most elegant solution by far to the current crisis. He suggests that the Government take two simple steps, the first of which is the same under the current bailout plan which is to value the toxic paper assets. His second step is to have the government guarantee the asset values rather than buy the assets themselves. This brilliancy *immediately* solves the two key problems in this crisis: first, it means the Government does NOT need to borrow 700,000,000,000 from … you and me. Second, it creates a market for the distressed assets because the Government value guarantee means that investment capital will flow to buy these formerly toxic assets because they have a floor value along with possible extra upside. In this scenario you’d see investors band together to buy books of real estate which the Govt would guarantee but the investors would have incentive to improve and resell at a profit. In that scenario, replayed throughout the economy, we’d see Government intervention and more importantly Government *obligation* limited, allowing the free market to work, money to flow, etc.

Why is O’Neill seeing what Paulson can’t see? Probably because Paulson, Bernanke, and congress are both mired in the type of thinking that got us into all this in the first place. Namely that the massive global economy can sustain dramatic levels of financial derivative manipulations and Government manipulation without a huge raft of unintended consequences.