SO FAR:We have a financial crisis created by greed, ignorance and suspected fraud that was enabled by too much deregulation. Homeowners bought houses with repayment plans that they had little or no chance of being able to meet. These mortgages were bundled (hidden) with other securities & resold. They were bundled again and resold again, with wider and wider debt to asset ratios. More and more funny money became the backbone of our financial system. Financial institutions and banks bought from each other without really knowing what they were buying. People invested their savings, again without really knowing what they were buying.
I think that’s where we’re at. Anyone who REALLY knows what they’re talking about will probably find the above easy enough to start poking holes in. And maybe in this too:
This crisis will effectively freeze credit. Companies who rely on credit to grow or to smooth erratic cash flow will no longer be able to get the money they need to function, and will fold, which will cause more unemployment. Private citizens who need credit to purchase large ticket items like cars and homes will be forced to go without, which will bring large ticket item sales to a halt, which will in turn force the primary and related businesses to fail, with even more unemployment.
So we must pass this $700 billion bailout plan, right?
We’re going to spend $700 billion of money we don’t even have to buy up the shittiest of the shitty securities, right?
The Democrats want to act quickly, spend the money, and make sure that there are provisions to help struggling homeowners, to make sure that anyone on Wall Street who helped create this mess is not unduly rewarded, and to make sure that anyone guilty of fraud is punished.
Some Republicans are holding out, feeling that this is a bad & expensive bill that may not solve anything. Some of the holdouts are favoring further deregulation and tax breaks so that these questionable securities can be sold in the open market, rather than being bought by the government.
Here's what I'm suggesting:
FINGER ONE: “F” THEM ALLLet the chips fall where they may. If financial institutions bought bad securities, tough. They should have looked closer. If private investors bought bad securities, tough. They should have looked closer too.
Everybody should have looked closer. Whoever’s left holding the bag right now are the ones who are going to be hit the hardest. They’re going to lose money. It’s not really fair, but what’s more fair – that EVERYONE should lose money?
Offhand, I can’t think of any industry that operates based on a “but I didn’t mean to do it” philosophy, outside of ice cream shops. If you take your kid to Dairy Queen, buy your little boy or girl an ice cream cone, and then your little sweetheart drops his cone on the floor, there’s a very strong chance that the store will offer to replace the kid’s cone at no charge before the tears even start to flow. For that reason, I would exempt all ice cream stores from the “F THEM ALL” rule. But for all others, sorry, if you bought it, you bought it.
FINGER TWO: GOVERNMENT LUBE JOBWe need credit. Credit is what lubricates our economy & keeps if flowing. And the government is on the verge of spending $700 Billion to keep credit available.
Don’t give the money to anyone. Instead, the government can use that money to start offering fair market loans. The interest rate does not have to skyrocket. At fair rates, and based on sound business principals (return on investment), the government has plenty of (our yet to be earned) money to lend, apparently about $700 billion of it.
The government lending institution is a temporary measure while the financial institutions try to sort things out. Financial institutions will fail. Others will spring up. The government’s role in all this is merely to stabilize the market, and not to unfairly compete against the private sector.
Once the worst of the worst of the financial institutions have failed and banks figure out a way to deal with each other again, they will be willing and able to lend money again.
FINGER THREE: SORT IT ALL OUTThe banks won’t trade with each other right now because they don’t know what they’re looking at. Sort it out. Trace it back, step by step and figure out what the hell is bundled with what.
Hopelessly tangled and overly complicated securities? Bullshit. It is complicated and I can’t make heads or tails of it, but then I’m not that well versed in it & I’m not necessarily the smartest guy. But if I really thought that this whole thing was TOO complicated to detangle, I’d quit paying my mortgage today. I mean, how are they going to find little old me?
If they’re not already working on it, the financial institutions should start applying themselves to figure out what they’re holding and what they’re thinking of buying or selling.
On a different level, the FBI should continue their investigation into this. Some CEO’s and others should be going to jail for this, hopefully after we’ve confiscated all their assets.
SUMMARYThere’s probably something wrong with this plan. And I really started it in jest, but then started wondering if maybe it’s not a good solution. If it does work, it’ll be a temporary fix that will generate income for taxpayers (which should reduce taxes?), with very little risk.
Unless of course, you happen to be one of those holding the bag right now.
