From Mehrling and Kotlikoff:
Rather than ask Hank Paulson to
determine the price of each and every toxic asset, let’s have him
simply set prices for the ABX insurance policies (or credit default
swaps, as they are called). Right now these insurance policies are
selling for crazy prices because nobody can insure against systemic
risk. Nobody, that is, except the government. The government is in a
unique position to insure against system-wide risk because its own
decisions determine, to a very large degree, the extent of this risk.
Were the government to start selling the ABX insurance policies at
reasonable prices, our Cinderella mortgage-derivatives market would
suddenly wake up and start pricing every mortgage-related security in
sight based on these ABX prices. If Hank does this, the market will do
essentially all the pricing; Hank will have only a handful of prices to
set, not thousands.