I received quite a few critiques of my “provide analysis but no solutions” policy. So here are my recommendations, based on guesses about the course of events. Being neither an economist nor financial guru, this describes the broad policy actions I suspect are needed — but not the details. These measures are consistent with the posts I have written over the past year about the end of the post-WWII geopolitical regime and will allow us to adapt to that inevitable evolution.
This is the first in a series describing what needs to be done to avert a disastrous crash in the US economy.
Preamble
The policy response of our leaders has been inadequate, up to and including the Paulson Plan. Their actions have been incremental and reactive in nature. While each step has been larger than its predecessor, all have been reactions to the past dimension of the crisis — not the future. That is, our leaders have been “behind the curve.”
Paulson and Bernanke have taken actions that would have been effective if applied 2 or 3 quarters earlier. Borrowing a metaphor from emergency medicine, they have squandered the “golden hour“, since the crisis started with the collapse of the mortgage brokers in December 2006.
Correcting this flawed procedure is the first step. Doing so at this late date will require immediate and drastic actions. The severe effects of the recession — now affecting the developed nations, perhaps soon the entire world — will soon be felt, further destabilizing the economy and the financial system.
To determine the scale of the necessary measures, try a thought experiment (Gedankenexperiment). Assume the scenario I describe. If we implement the Paulson Plan, what measures will be necessary by Q2 of 2009?
Recommendations
- Stabilize the financial system.
- Stabilize the economy.
- Arrange long-term financing for steps #1 and #2 with our foreign creditors.
Click on the above links for details. A conclusion follows below, explaining why we will not implement such measures and the the possible consequences. The above links go to posts explaining each recommendation in greater detail.
I. Stabilize the financial system
No modern economy can survive the meltdown of its financial system. There are many ways to avoid this, illustrated by the following.
(a) Recapitalize the financial sector by a transfer of wealth from the taxpayers to banks and brokers — This is probably the key element of the Paulson Plan, done by the government buying assets at above market prices.
(b) Close defunct or weakening financial institutions under new bankruptcy legislation, under which the courts could act with extraordinary speed and authority. This should involve replace managements. New managements could be selected by a bi-partisan committee of business leaders that should have only a minority of members from the financial industry.
(c) Outright nationalization — As done the defunct Savings and Loans during the early 1990’s, and today with the GSE’s and AIG. Large scale nationalizations might be required. If so, our political regime’s survival might depend on how this is done. Not just their acquisition, but their operation and eventual privatization (if any).
Creation of an agency like the Depression era Home Owners Loan Corporation, as recommended by Nouriel Roubini, can play a role in any of these policy choices.
II. Stabilize the economy
(a) Why wait? Set up the job training and education programs now, rather than throw them together in haste when they are needed yesterday. There will be many unemployed, and this is an opportunity to upgrade their skills for the next cycle.
(b) Many local governments will go bankrupt, as so many are vulnerable (e.g., NYC). Work with the States now to prepare the necessary legal and financial apparatus to handle these.
(c) Implement a massive monetary stimulus, such as taken by Japan at the start of their dark decade after the 1989 crash. That means near-zero interest rates (far below the level of inflation) and a rapid increase in the balance sheet of the Federal Reserve. The government has not taken these steps because they might lead to currency flight from the US Dollar, and the government does not want to take the necessary measures to prevent this (see III).
III. Arrange long-term financing for steps #1 and #2 with our foreign creditors
This means a negotiated agreement with the foreign central banks who are our primary creditors, with the appropriate support from Congress.
We will need to reschedule our debt and obtain new financing. Our government will have to rollover roughly $500 billion/year, plus the trillion or so in additional borrowing (as tax revenue declines and expenses skyrocket) for the next two years (perhaps longer). Plus measures will be needed to stabilize the value of the US dollar, allowing a orderly decline.
These extraordinary negotiations will be inherently destabilizing, putting in question both the US Dollar’s role as reserve currency and America’s role as global hegemon. This is the price paid by our past folly, getting us into this crisis.
Obtaining and executing this agreement must be concluded successfully. It is a jump across a chasm to a new world. But the chasm lies ahead of us, and must be crossed eventually. Let’s strike a deal while we can negotiate from a position of strength. Rather than waiting until we are desperate.
The cost will be high. An agreement will be in the best interest of all, but that does not mean that we will not have to make concessions. To give just one example, China might ask that the US break our relations (esp military) with Taiwan.
Conclusion
I believe that the downturn can be mitigated by immediate and decisive action. Building public support for these measures and avoiding panic will require the highest level of statesmanship by our leaders — and responsible citizenship by us.
Of course we will not take such actions in a timely fashion. Our leaders’ happy talk was intended to maintain spending and investment during a brief slowdown. The unintended consequence is that the American people are psychologically unprepared for this crisis.
Worse, our Observation-Orientation-Decision-Action loop is broken. Despite years of warnings (see this list) we have not seen the danger ahead. Now that it is upon us, our fixed optimism prevents us from orienting ourselves to changed conditions. I doubt that our leaders can either formulate adequate plans or execute them.
As so often in American history, we must fall back on the resourcefulness of the American people. Our ability to act together, to force our leaders onto the right path, to have the resilience to weather difficult times.
If you are new to this site, please glance at the archives below. You may find answers to your questions in these.
Please share your comments by posting below. Please make them brief (250 words max), civil, and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
Key Treasury Department documents
We cannot plead the “we didn’t know the details in the fine print” excuse. The important details about this massive nationalization have been clearly spelled out for us. See this page for a current list of Treasury Department documents.
Some posts about the current crisis
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Treasury Secretary Paulson leads us across the Rubicon, 9 September 2008
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High priority report: a geopolitical sitrep on the financial crisis, 15 September 2008
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Say good-bye to the old America. Welcome to our new socialist paradise!, 17 September 2008
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Another voice warning about the nationalization of AIG, 18 September 2008
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A vital but widely misunderstood aspect of our financial crisis, 18 September 2008
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A new sitrep, as we move into phase 3 of the financial crisis, 19 September 2008
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Another step away from our Constitutional system, with applause, 19 September 2008
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What do we know about the financial crisis? What are the key questions?, 20 September 2008
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Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
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America appoints a Magister Populi to deal with the financial crisis, 21 September 2008
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Legal experts discuss if the Paulson Plan is legal, 21 September 2008
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Essential steps to surviving the current crisis, 23 September 2008
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A picture of the post-WWII debt supercycle, 26 September 2008
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A quick guide to the “Emergency Economic Stabilization Act of 2008″, 29 September 2008
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The most important news of the month. Perhaps the year., 29 September 2008
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German Finance Minister Peer Steinbrück explains how the world is changing, 30 September 2008
For a full listing see the FM reference page about the Financial crisis – what’s happening? how will this end?.
A few of the most important posts warning about this crisis
This crisis has long been forecast by many, including in articles on this site. Even now that we are in the whirlwind, these provide valuable background material on its causes — and speculation about the results. To see the all posts on this subject, go to the FM reference page about The End of the Post-WWII Geopolitical Regime. Here are some of those posts.
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A brief note on the US Dollar. Is this like August 1914?, 8 November 2007 — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
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The post-WWII geopolitical regime is dying. Chapter One, 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
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We have been warned. Death of the post-WWII geopolitical regime, Chapter II, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
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Death of the post-WWII geopolitical regime, III – death by debt, 8 January 2008 – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
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Geopolitical implications of the current economic downturn, 24 January 2008, – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession?, 18 March 208 — The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
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The most important story in this week’s newspapers , 22 May 2008 — How solvent is the US government? They report the facts to us every year.
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The World’s biggest mess, 22 August 2008 — A brillant ex pat looks at America from across the ocean.
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“The changing balance of global financial power”, by Brad Setser, 22 August 2008
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“The Coming US Consumption Bust”, by Nouriel Roubini, 6 September 2008
Great post.
1. Dismantle the Fed
2. The bankruptcies suggestion is excellent. I suspect if they immediately outlaw most of the derivatives that a) many of such institutions would go bankrupt which is fine and b) then we get back to more normal banking operations whose purpose is to help foster genuine productivity.
3. As to training, this should be part of broad govt-led policy including large infrastructure and other projects. Emphasis should be on rebuilding the nation and getting back to actual productivity, i.e. making things. Changing car technology would provide a huge boos in productivity.
4. Giving higher share of tax monies to municipalities and States.
5. Dismantling US foreign bases and reducing Pentagon budget by 75%.
This gets my vote. Particularly clever and a ‘two-fer’ is getting foreign funding by selling out ridiculous vassal states from the prior era… cuts expenses and exposure while raising ready cash.
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Fabius Maximus replies: Daily prayer sessions.
This was brave of you, thanks for offering us your insights. I like the ideas but suspect that they are not possible in the current political climate. What recommendations do you have that are possible within the current political situation?
When I read Pluto’s comments above my mind flashed to one of those scenes in Atlas Shrugged (there’s so many of them) where one of the Good Guys offers a plan for even a ha’pennyworth of reform and one of the Bad Guys says “You Can’t Do That.”
The point of the ideas that FM has proposed is that they are NOT possible in the current political climate. They make too much sense. I suspect that things will have to get a lot worse before proposals such as this can be considered– at which point they will no longer be adequate.
I particularly appreciated the idea that our creditors, who have not yet tried to influence our foreign policy (at least I haven’t heard about it) may well “request” changes in American policy as the price for renegotiation of our debt structure.
The Chinese curse is coming true– we live in interesting times, indeed.
What is meant by “political climate” in the above comments? Climate suggests public opinion(not excluding Congressional opinion, since our lawmakers have been promulgating free-market ideology for so long they don’t know anything else.) But the real obstacle is not public opinion, but “power”. Who put all these lawmakers in place? Who wrote the regulations and de-regulations? Who will provide the expert advice for the next steps?
The head of Pimco, the biggest mutual fund, offered two days ago to manage the proposed bailout process for free! And some commentators said “we could do worse.” The truth is, the task, if properly done, is way beyond the staff resources and expertise of Treasury. How can we talk of nationalization when the private companies being nationalized are at the same time being considered to run the process?
Why are our lawmakers so ready to approve this bailout plan, with its obvious fundamental flaws, and obvious bias toward the banks? What are they afraid of if they don’t?
No-one, including me, wants to see the entire economy crash, but that may be the only condition in which we can pry loose big business and big finance from control of our lives.
Sounds like a good plan. I’m not to fond of printing money in vast amounts though. Looking over the charts for dollars, gold, and oil, there is a definite corralation with the value of the dollar in relation to gold in relation to oil.
It would bring a heavy penalty of very high inflation in the area of imported raw materials. I’m not much on a hard gold standard either but I do think some kind of index to gold would help determine when we reach a level of monetary stability. This needs to be settled first. We need to reconfigure our tax and regulation system to set the US up to manufacture and export products. We then need to freeze government spending for at least 5 years for revenue to catch up.
Who put these people there? We did! Who benefits most from a crash? The rich who run big business and big finance! Most of them will still be rich and have lots of influence. After a crash they could even hire there own private armies alot cheaper than now. It would be a mess in other words.
Alot of these ideas will come but they will be later than sooner.
Dear FM
I suppose it is not realistic, but I believe one of the greatest reasons for America’s financial problems is its role as a global superpower. End that role and you will end up saving a lot of money. Each month the United States spends 12 billion dollars it simply doesn’t have on warfare just in Iraq. I suppose you could counter that argument by saying American policing the world protects the global economy and that it is hardly possible to leave Iraq or Afghanistan or any other place where the USA has military bases quickly in order to save the economy. I guess that is true, but any plan to save the economy will also end in failure if this policy of intervention in foreign countries just keeps going on. Germany was foolish to fight a two-front war in both world wars, but today the United States are fighting a war in Iraq, Afghanistan and increasingly also in Pakistan. Not to mention the rest of the Global War on Terror. When will this end? Basically the United States is fighting a world war with a peacetime economy. There are people who also believe the United States should intervene in Burma, in Sudan and many other awful places.
As far as I can see the United States has two options with their empire: Going for a sudden crash like the Soviet Union (which will be the case right now) or opting for an orderly withdrawal. Just like the British did with their empire.
Actually this is a bit surprising: Why o why the Americans are not even now – when their own homes and jobs are threatened by the financial crisis – debate why the United States spends a terrible lot of money and soldiers fighting around the world, increasing the deficit and make the financial crisis even worse? Where is the debate?
Tsk, Tsk, Tsk
How pathetic it is to watch the rabidly ideological American free-market “anything goes” debt-worshipping populous (from the government, through Wall Street, to Main Street) freak out when the free market tries to rebalance itself toward a sustainable equilibrium.
The Reaganomic model of zero regulation, maximum debt, maximum leverage “trickle-down” overfeed-the-wealthy was eagerly adopted by all parties, and the debt-and-leverage-stimulated 25-year expansion was noisily held up as proof of American superiority (even arrogantly called “The Great Moderation”). The rest of the world bought the scam and fed wetly at the trough, including the Russians and the Chinese.
As any objective student of free-market capitalism can predict (see Hyman Minsky 1988, for example), with no internal or external constraints the free market players (right down to the homeowners seeking infinite leverage with their no-down payment mortgages) will ALWAYS substitute income/savings with leveraged debt as a means to faster, better, bigger, more economic growth. If natural steroids help us develop muscles, why not inject ourselves with more and more synthetic steroids?
Anybody with an I.Q. in triple digits knew this rubber band could only be stretched so far, and many have predicted during the last decade the contraction or breaking of the band. Obviously a contraction would bring slower growth – and that is unacceptable in the Glorious American Victory Through Leveraged Debt paradigm – but a sudden breakage would be much, much worse.
All the pigs at the trough ignored and insulted the level-headed economists and politicians who warned about aggregate debt reaching 350% of aggregate GDP, with the rate of credit creation and the degree of leverage accelerating. More and more cheap credit was and is being poured forth to prevent a credit contraction, and now we are at the breaking point – manifested by credit still being cheap (6% mortgages and car loans), but the credit markets themselves are frozen with almost no loans being made. That’s what happens if you artificially try to force rates of return into permanently negative territory – no one wants to loan at all (especially at the end of the 25-year binge when default becomes the order of the day).
The biggest of the bigwigs are panicking as they look over the precipice they have created by preventing a natural, gradual credit contration to equilibrium, and they finally see the total credit crash and “economic Armaggedon” (the breakage) about to hit. They’re scaring the greedy, economically unsophisticated American (and World) populace to death – which will add to the velocity of the economic contraction.
They’re still not listening to objective free-market economists, who clearly are warning that using more government borrowing to funnel obscene amounts of bailout cash to Wall Street is just adding to the unstable over-indebtedness problem that is trying to self-correct; the rubber band is just being stretched further, and it is definitely starting to break.
Gloom and Doom?
Well, the recessions/depressions at the end of credit binges are always experienced as Gloom. But, if we keep on this path, the “unthinkable” (you know, like housing prices going down, Bear Stearns/Lehman Brothers/Merrill Lynch/AIG suddenly folding, etc) may take place: The creditors who hold our government debt (and will have to loan us even more as we give trillions to Wall Street) – China, Russia, Japan, and the Gulf Sheiks – may get sick of losing money by subsidizing us, and they may stop buying Treasuries that pay a negative real return. Then the crash of the Glorious American economy will make the Great Depression look like a dimple.
That’s Doom.
Among your drastic measures for stabilizing the economy, isn’t there a contradiction between monetary stimulus by lower interest rates, and borrowing massively from foreign creditors? Won’t buyers of T-bills demand higher interest rates?
Conservative President Sarkozy calls for a complete re-building of global economic institutions along with an admission that pure free market ideology is dead. Isn’t something similar required in the US case? Rewarding the major US banks in any way seems like the wrong way to start that. If the majors must be saved (recapitalized) to save the economy, then at least taxpayers should receive an equity stake in return. But this option has already been rejected, by Pelosi among others.
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Fabius Maximus replies: That is why #3 is essential, as the majority foreign buyers of US debt will be, just as today, foreign central banks. We need to arrange long-term, low cost financing for restructuring the US economy. They will go along with this for their own reasons, as providers of vendor financing often do.
Your doing a fine job FM. Got your site’s link from Roubini’s site, which I’ve followed for years… Has anyone looked at this mess as America having global debtor power, over the entire globe? Just think if FDI leaves, how far can the dollar really drop, without foreigners willingly bailing it out, i.e., supporting it to protect themselves, as we would ramp up and jam the world full of exports. They can’t all eat Caterpillar tractors for breakfast. I think we’ve still got more “empty” leverage, than most realize, though I do agree the best path is FM’s, Roubini’s or a copy of Sweden’s `91 recovery process, though at the same time, I far prefer Dr. Paul Davidson’s Keynsian exchange clearing bank proposal. Beyond that is my own suggestion to Edward Hugh, over three years ago, of Internal Exchange Clearing, Triple Entry Banking, and related P.X System, i.e., Keynes’ Bancor, and Marshall’s “units of production” standards of value, along with all the other sensible ideas mentioned. These ideas are mentioned at the “Let’s take A Higher Road” on my blog, in the Sept. archive, of my other blog, listed at the top right, The American Mind…
Anyway, it’s sure going to be interesting. How long do you think it’ll be before the power elites truly awake…?
{FM note: I have added additonal links and info to Grey’s comment}
Here’s an alternative set of sometimes overlapping recommendations from a small banker: “Key Points on “Rescue” Plan From A Healthy Bank’s Perspective”, John Allison, President & CEO of BB&T — Purports to be a part of a letter from him going to every member of the US Congress. See below for links.
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Fabius Maximus replies: This is interesting as evidence that almost 2 years into the crisis key business leaders remain oblivious to its nature and breath. Esp in this case, Allison still sees this as a mortgage or housing crisis — despite the overwhelming evidence that this is no longer true (and from a systemic perspective, never was true).
Note: this letter is all over the web, but I see nothing like an official or authorized version.
* The earliest post — and the only one apparently giving the full text — was “Federal “Rescue” Plan – John Allison’s Perspective” at Red Clay Citizen on September 24. But that link no longer works.
* John Hood posted excerpts from the letter on 24 September at National Review Online.
* “South Carolina Conservative” posted “key points” from the letter.
Typically, none of these people have any interest other than passing the current hot dot. Hence none bother to mention where they got this letter. Pixies slid it under the door? Even at Rodeo Clown College they teach that the source of the evidence is as important as the evidence itself — otherwise we have no way to judge if it should be taken seriously.
BB&T was (before the corporate fad for meaningless names) “Branch Banking and Trust Company”:
“BB&T Corporation has $136.5 billion in assets; operates approximately 1,500 banking offices in 11 states and Washington, D.C.; and has 31,000 employees.”
The “Armageddon” coming is a result of the cessation of liquidity. All economies run on debt: the US is by far the world’s largest, and is estimated at the end of 2007 to have had total debt of $53 trillion. This debt is made available through the banks, whose primary role is to match lenders and borrowers – private, commercial, governmental and national. The banks have now stopped doing that, as they do not regard anyone as a safe borrower, not even each other. So the supply of money quite simply stops dead.
It could be restored by government action, but it appears that the US does not currently have a meaningful government. In the financial sphere at least, it appears to be a failed state without any role to play. The markets have been told to live and die by their own rules.
When the money supply cuts out, the impact will be almost immediate. Fuel and food will become scarce, as deliveries will stop. Bank cards will stop working. Cities will experience the kind of problems of supply and subsistence that were seen in New Orleans, triggered in a different way but really caused, as that was, by a failure of government and organizational management.
Some Americans will starve. There seems to be a deep belief among many Americans that such things cannot happen, and therefore little or nothing needs to be done. They speak of not using taxpayer dollars to rescue rich bankers, and the ideological dangers of creeping socialism.
If public opinion remains on that level, and rules government, this Armageddon is as predictable as the next eclipse. And it is not 1929, or the Great Depression. It is a good deal nastier.
This is no time for the US government to be paralyzed.
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Fabius Maximus replies: Most of this is certainly wrong. I will just examine a few lines, to illustrate this.
“the end of 2007 to have had total debt of $53 trillion.”
I do not know where you get this. I suspect you refer to the net present value of the US government’s liabilities. Debt results from past expenditures. The net debt $5.7 trillion, as of 27 September. In this context, liabilities are the present value of promises to pay money in the future. Since the offset is future tax revenue, that some is less alarming than if we owed it today.
“The banks have now stopped doing that”
That is a gross exaggeration.
“it appears that the US does not currently have a meaningful government. In the financial sphere at least, it appears to be a failed state without any role to play. The markets have been told to live and die by their own rules.”
This is nonsense. We do not have an ideal government, but then you must first die to get to Heaven. The rest is equally overheated.
I’m sad to confess I have waited 30 years to finally see this. I am a classic industrialist. I have spent the last two decades building a chemical process equipment company. We build water treatment systems. For decades, it seemed there was a conspiracy to frustrate us in competition against old tired manufacturers like GE and Siemens, who bought up essentially our industry. In the past five years, there has been an astonishing transformation in the competitive landscape. In part, this is just us getting our act together. But honestly, the world seems to suddenly be saying,”For God’s sake, you can build something we can use? Well let’s have it then. How soon can you ship it?”. I guess we take their oil, and flat panel TV’s, they have to take something in trade eventually.
No, I am not referring top US govt. liabilities alone but to total debt including, but not limited to, domestic, business and financial debt -the money that is needed to keep daily life going. The willingness of banks to lend to each other is marked of course by the Libor rate, which is now punitive. The wheels have been kept turning for the last few days by truly massive injections of central bank money. As for the role of US government – the paralysis of Congress and the President appears startling.
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Fabius Maximus replies: That is called “total credit market debt”. To get that figure you add government, nonfinancial, and financial debt. That is double counting, as the financial sector is an intermediary, borrowing money wholesale to lend retail, so each loan is in effect counted twice.
* Here is a graph, as usual expressed as a % of GDP to allow historical comparison.
* a two page analysis (the 2nd page shows how the various components have increased), and
* the Fed report of the current numbers (note they do it correctly, not including financial sector debt). The total is $31.8 trillion as of Q1.
As the graphs show in “A picture of the post-WWII debt supercycle“, the growth story is household debt. The other elements have grown, but not so disturbingly.
A delay of a few days in passing a bill is the opposite of “paralysis”. The few days will make no difference; taking the time to think and debate will probably result in a better bill. That is how the system should work, rather than just passing anything the President sends down amidst claims it must be passed now as is — or the world will burn.
the only solution is divison of wordly goods. the only way to true love and basicly THE only way.
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Fabius Maximus replies: All of us will eventually reach the fine world you describe (well, perhaps some of us will). But we must first die.
“(a) Recapitalize the financial sector by a transfer of wealth from the taxpayers to banks and brokers – This is probably the key element of the Paulson Plan, done by the government buying assets at above market prices.”
I just can’t get past this one. Recapitalization […] by a transfer of wealth from the taxpayers to banks and brokers. No sir, I just can’t.
Fine post(s) FM, but consequences be damned (yes I am well aware of their potential depth and scope) I just cannot stomach the thought. Financial scorched earth leaves an indelible memory and not much else.
Behold a pale horse.
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Fabuis Maximus replies: Then take (b) or (c), or some other method. This is just a flowchart; I just list the alternatives. The option (do nothing – let the financial system collapse) was tried in 1929-32. The results were not pretty.
Well, we’re gonna go for a) now it seems. Voters be damned apparently. They shoulda passed the hat in the Hamptons over the weekend first though.
And this would likely not be our fathers collapse – proably much worse. Still…
Yesterday I received a credit offer from Capital One: 10k to 30k, no collateral, starting at 6.99% APR, personal loan. From this I conclude there is no credit crunch for creditworthy borrowers.
Why can’t California borrow? Perhaps the state is not creditworthy. Perhaps we should re-examine the recent budget that was passed a couple of months past the deadline.
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The banks are strained by CDO writedowns and the financial system is paralyzed by a potential cascade of CDS counterparty defaults. The LIBOR is hitting 4% over US Treasuries today.
Perhaps we should take a look at history’s solution to a debt problem and declare CDS instruments gambling debt and hence unenforcable in a court of law. (see MacKay’s Extraordinary Popular Delusions and the Madness of Crowds)
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Fabius Maximus replies: Nice of you to answer this comment, but there is little point in replying to folks who cannot see the difference between California borrowing hundreds of millions and them getting a credit card loan.
Fabius: Most people attribute the current financial situation to the root cause of a crushing trade deficit. That may well be true but in the final analysis, I believe the train went off the track as a result of basic greed. Clever people thinking up clever solutions to cover up mistakes that a small local banker would never have made. You lend money to people based upon their ability to repay NOW, not based upon some vague, nebulous set of potential conditions that may or may not exist in some undefined future. That’s BANKING 101!
I do not have a home mortgage, but nonetheless I am certainly being affected by the current financial situation. While I do not consider myself an expert by any means in these matters, I have been thinking about it almost non-stop for quite sometime now. It occurs to me that the solution, while not at all easy is not at all impossible. If the finance companies want any kind of government bailout assistance, they should be willing to work for it, dare I say EARN it. If they were clever enough to learn how to repackage (“slice and dice”) all of those poorly issued, underperforming loans for subsequent sale in the first place, they should also be smart enough to unravel the mess they caused.
Every package has a paper trail and every transaction can be tracked. Thus, every institution involved in this situation, in order to claim, much less be eligible for any Federal money, must be able to roll back those transactions one step at a time. No roll backs, no funds. This way, rather than a shotgun blast of Federal aid throwing out money to virtually every single financial institution over $100 Billion, only those institutions in actual need will be assisted. Even more importantly, only those loans that were underperforming in the first place will be included in the assistance from the government. Thanks,Tom Spano
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There is ONLY ONE WAY for the American people to solve their $$$ crisis:
HERE IT IS:
By a sovereign act of Congress, DECLARE WAR on the Federal Reserve Bandits and outlaw their system.
The Federal Reserve (a group of private bankers) has continually been given the right to print US $$$. Then the American people, through their elected government, has been borrowing said $$$ at crippling interest rates. Simply put, this is ‘banditry’.
Why did the US government not originally have US government print said $$$ at no interest rate to the people? This unnecessary paying of interest to the private sector has accumulated to a totally unmanageable level. SOLUTION: Ban the bandits and simply write off the accrued debt plus interest as an act of war. War, not on any sovereign nation, but War on the private bankers that seduced USA when they set up that evil system so many years ago.
The Federal Reserve was set up as a tap (of interest) to siphon off the wealth of the American people into the coffers of the so-called elitists who owned the banks behind the Federal Reserve.
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FM reply: This is wrong on too many levels to even discuss. I know through long experience that such people are immune to any contrary data or logic. It’s astonishing what you get people to believe though repetition, so long as they listen to no mainstream sources.
Just one note: the public functions of the Federal Reserve System exist through law, and can be removed by such. Declaring war on our own institutions is nuts.