The goal of any new policy cannot be to prevent a recession. It's too late to stop such a downturn. The goal cannot be to save every bank. The U.S. economy has built up too many imbalances—consumer debt, overextended construction, impaired capital of banks—to avoid an economic downturn and a major retrenchment of the banking sector. The goal must be to avoid an outright collapse or deep recession. Two actions are therefore critical, and two more are subsidiary but still important.
Most important, the government and Federal Reserve Board must prevent the collapse of working capital by supplying short-term loans and taking other measures to sustain the commercial paper market, interbank lending and the smooth functioning of money market funds. They have the instruments to do so, and should use them aggressively. The government should also aggressively promote a recapitalization of the banking system so that bank lending is not squeezed for years to come. It can directly inject some public capital into banks, and can both pressure and entice the banks to raise additional private capital. Unfortunately, the $700-billion bailout nearing approval in Congress does not focus adequately on those liquidity or recapitalization challenges. The legislation is better than nothing (to help forestall panic) but the real work of stabilizing and recapitalizing the banking system will now await the next administration, and the Federal Reserve will need to stay aggressive in preventing a liquidity collapse."
Two additional steps will be useful. The first will be to ease the repayment terms on existing mortgage holders, to reduce the flood of defaults and foreclosures that will otherwise occur. The second is to encourage expansionary monetary and fiscal policies abroad (most notably in cash-rich Asia), so that the decline in U.S. consumer spending is smoothly offset by a rise in spending in other countries. This overseas expansion would allow the U.S. to offset the fall in housing construction by a rise in exports, and would allow other countries to offset the fall in their exports to the U.S. by a rise in their internal demand. All these steps will have to await the next administration.
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67 Comments
Add CommentI think of the current crisis as the Smokey the Bear problem. (Surely others have had the same thought but I write this because I haven't seen or heard it.) People often blame the great fires in our national forests on Smokey trying to prevent small forest fires. It seems ot me that we have the current huge financial crisis because politicians have been so afraid of smaller recessions and have gotten the Fed to extend rediculously easy credit to prevent even small bumps in the road.
Reply | Report Abuse | Link to thisBankers are not stupid. The push to make risky loans came from Congress and pressure groups like ACORN. Fannie Mae and Freddie Mac took much of the risk out of the equation by buying the high-risk mortgages in order to get banks to do the lending. Congress pushed this socialized housing approach all the way. Congress wrote a blank check and now Wall Street has simply come to cash it. The lesson learned should be that mortgages should be made on financial, not social basis. Oh, and don't listen to Congress when it comes to your finances.
Reply | Report Abuse | Link to thisWait a minute. Are you sure this isn't somehow related to George Bush and John McCain? Surely they must have something to do with this mess?
Reply | Report Abuse | Link to thisI just can't believe it was the Community Reinvestment Act (CRA) and the Democrats (Jimmy Carter) who pushed for loans to those who couldn't afford them.
And, Nancy Pelosi said the Dems had nothing to do with this problem...You mean she's wrong?
And you mean that even though Bush and McCain tried to introduce legislation to fix this mess years ago - and were shot down by Barney (no, the other Barney), Dodd, Schumer, et al...you still mean it's not Bush-McCain's fault?
But....how does this all fit in to what the Dems have been saying. I mean, they wouldn't fib on something this important...would they?
Monopoly capitalism, monopoly capitalists, and monopoly capitalistic practices caused the current financial crises. The "Bail Out" is counter-productive to appropriately and effectively addressing and correcting the same crises as it, through government protection and rewards, further promulgates the goals of "monopoly capitalism", the concentration of economic and political power in a few individuals and entities, while impoverish the American people, in general. What should have been done was to address and correct those individuals, entities, and regulations that promulgated the current financial crises as a result of the aforementioned.
Reply | Report Abuse | Link to thisLet us review how we got to this crisis from it being outlawed by the bank act (repealed by Ronald Regan) and the Glas-Steagal act (repealed by Bill Clinton). I note that the banking and wall street committees congress members from Barney (Frank??) and the republican conterparts both benefited from campaign contributions as did BIll Clinton and Ronald Regan. Glas-Steagal was the last law forbidding derivatives (such as bundled mortgages sold like bonds). It also prohibited banks from underwriting bonds and other financial issues (i.e. no bank can issue securities or insurance). They were enacted to prevent another great depression. They were repealed by a BYPARTISAN effort. The current
Reply | Report Abuse | Link to thiscrisis is not due to one party, but both parties being lead to the repeal by
the greed of Wall street and the campaign contrabutions that convinced our lawmakers to repeal it. The quickest solution is also apparent! reinact
the laws that prevented it for over 60 years! Once banks cannot underwrite secuities and securities can not be backed by other securities this problem goes away. Until we do this we may have to apply another 700G$ bandage.
Once again both parties are responsible for the current mess which is still
unfolding before us.
If you want to fix the financial problem, fix the rising unemployment by curtailing the outsourcing of jobs! Don't trust the "official" unemployment figures. When they're calculated, only those who are currently receiving benefits are counted. Once those benefits expire, those people are no longer considered unemployed - statistically, they don't exist. The true unemployment is at least twice that reported... and getting worse each day.
Reply | Report Abuse | Link to thisThe vast majority of people default on mortages only when they don't have sufficient income to cover it. Provide that income and the defaults will abate on their own.
It's all been fixed before and then unfixed for purpose(greed). I got this published in the Toledo Blade last Febuary:
Reply | Report Abuse | Link to thisSent: Saturday, February 16, 2008 10:48 AM
Subject: Toledo Blade 2/15/08
I finally got publication
Economic mess has its roots in the 1980s
The Founding Fathers could not imagine how American capitalism would unfold but did know from history some pitfalls. They wrote in the Constitution that money would be comprised of gold and silver, even though the revolution was financed with paper currency.
They couldn't anticipate events like the Panic of 1873, the robber baron era, or the Great Depression of the 1930s. As these and other capitalist excesses unfolded, Congress and sitting presidents enacted legislation to prevent future similar events. Some of the measures included anti-trust statutes, regulations, and a progressive income tax.
The present economic mess may be the result of changes made since the 1980s. Regulations have been progressively removed, mergers and acquisitions have been encouraged, and the tax rates have been tweaked to favor accumulation of great wealth and worse power. Economic history has been discarded in favor of new slogans and old destructive ideas.
I hope we catch ourselves in time and demand that the powers that be make decisions good for the country as in the past.
Bob Kranz
Westbourne Road
What created this mess was the monetary policy of the Federal Reserve, with its artificial and arbitrary setting of interest rates. Wholesale lending by the banks was a symptom of this, abetted by the Community Investment Act, as amended in 1995, and the assurance that Freddie and Fannie would be there to take up the slack. Add to this the Credit Default Swaps that the issuers hoped would make them rich (as the market incline continued), and you have a recipe for disaster when the artificially created bubble burst.
Reply | Report Abuse | Link to thisNot to mention the onerous body of regulations already in place, that only added to it, rather than fix/prevent/manage, as they are sold to the public to do.
And why did the Fed have this monetary policy? A. To create the bubble, an illusion of prosperity, and B. To finance the wars. That's right, they created a war economy, the effects of which we are now seeing as the illusion is shattered. \
Further attempts to "fix" the economy will only prolong the inevitable, and make worse the crash when it comes. And make no mistake, it will come. Do people really expect that the "experts" who brought on this mess, who failed to see it coming, are the same "experts" who are going to fix it? They're only trying to save their own ass-ets. But, they're not expert enough to do even that; something which they will find out, much to their chagrin . . . and ours.
I was heartened by Wells's buy out of Wachovia; no Fed needed. Maybe a lot of the market can take care of itself. Short term borrowing between banks has dried up because fundamentally, they know they all lie and those with money to lend aren't going to do it with liars like themselves. While regulation is critical and both parties are to blame, and yes, throw in greed by Wall St., direct your attention to this link. Interesting to say the least. Big problem, simple solution. Won't happen as too many, regardless of party affiliation won't get to play the game anylonger. The only ones better off will be the American people, and no one has paid attention to us since around Abe Lincoln (or pick your spot in history before the 1870's).
Reply | Report Abuse | Link to thishttp://www.youtube.com/watch?v=wwC7q_gdex0
There is more than ample blame to go around between the political parties, among greedy banks and their backers, and, most especially with the inaction of alleged "oversight" bodies.
Reply | Report Abuse | Link to thisHowever, I would strongly suggest you read an article in the NYTimes today: The Reckoning: Agency’s ’04 Rule Let Banks Pile Up New Debt. This is unfettered greed and capitalism at its worst.
Be that as it may, are the suggestions in this column "adequate" to get us out of this mess? I believe this "recession" going to be far worse than any of us guess. But it will create, hopefully, a society of citizens rather than one of consumers. Is that a bad thing?
Sorry, Jimbo, but if you google "Bush family and Savings & Loan Scandal" you'll begin to smell smoke. Perhaps, there is a little fire - somewhere.
Reply | Report Abuse | Link to thisSorry, Jimbo, but if you google "Bush family and Savings & Loan Scandal" you'll begin to smell smoke. Perhaps, there is a little fire - somewhere.
Reply | Report Abuse | Link to thisSorry, Jimbo, but if you google "Bush family and Savings & Loan Scandal" you'll begin to smell smoke. Perhaps, there is a little fire - somewhere.
Reply | Report Abuse | Link to thisSorry, Jimbo. "google" "Bush family & Savings and Loan Scandal". If you begin to smell smoke, better look around for a fire.
Reply | Report Abuse | Link to thisYeah, the finance industry is a mess, that's obvious. But I think the real problem is short sightedness on the parts of our corporate leaders. Current thinking is to make a quick buck and it has been for some time. Cost reduction has been over emphasized as a way to improve earnings. So companies reduce employee expenses through automation, contract employees, outsourcing and moving manufacturing to overseas locations.
Reply | Report Abuse | Link to thisThe top executives are rewarded by the boards and shareholders and the employees that are left get little reward and in fact have a hard time keeping up with ever increasing costs of living.
I think that if our highly productive employees where rewarded as well percentage wise as there leaders where, we would be able to make our product here in the U.S. because we would be able to afford our products once again. If you are like me and have tried to buy American, you are currently finding it very difficult. After all, American isn't necessarily American any more. Most the parts on a Harley are imported and assembled here. The same with American cars. Electronics, good luck there. I think we need a better mindset at the top, both corporate and in our Government. We need people like the nations founding fathers. I can't imagine what they would think of our current situation.
Yeah, the finance industry is a mess, that's obvious. But I think the real problem is short sightedness on the parts of our corporate leaders. Current thinking is to make a quick buck and it has been for some time. Cost reduction has been over emphasized as a way to improve earnings. So companies reduce employee expenses through automation, contract employees, outsourcing and moving manufacturing to overseas locations.
Reply | Report Abuse | Link to thisThe top executives are rewarded by the boards and shareholders and the employees that are left get little reward and in fact have a hard time keeping up with ever increasing costs of living.
I think that if our highly productive employees where rewarded as well percentage wise as there leaders where, we would be able to make our product here in the U.S. because we would be able to afford our products once again. If you are like me and have tried to buy American, you are currently finding it very difficult. After all, American isn't necessarily American any more. Most the parts on a Harley are imported and assembled here. The same with American cars. Electronics, good luck there. I think we need a better mindset at the top, both corporate and in our Government. We need people like the nations founding fathers. I can't imagine what they would think of our current situation.
Yeah, the finance industry is a mess, that's obvious. But I think the real problem is short sightedness on the parts of our corporate leaders. Current thinking is to make a quick buck and it has been for some time. Cost reduction has been over emphasized as a way to improve earnings. So companies reduce employee expenses through automation, contract employees, outsourcing and moving manufacturing to overseas locations.
Reply | Report Abuse | Link to thisThe top executives are rewarded by the boards and shareholders and the employees that are left get little reward and in fact have a hard time keeping up with ever increasing costs of living.
I think that if our highly productive employees where rewarded as well percentage wise as there leaders where, we would be able to make our product here in the U.S. because we would be able to afford our products once again. If you are like me and have tried to buy American, you are currently finding it very difficult. After all, American isn't necessarily American any more. Most the parts on a Harley are imported and assembled here. The same with American cars. Electronics, good luck there. I think we need a better mindset at the top, both corporate and in our Government. We need people like the nations founding fathers. I can't imagine what they would think of our current situation.
There is an straightforward way to ease unemployment, and that is to adopt a weak dollar policy. A weak dollar improves exports and brings jobs back. Weak dollars benefit the middle class and the poor by getting them back to work.
Reply | Report Abuse | Link to thisOur strong dollar policy benefits the rich, and makes the rest of the nation go heavily into debt. Strong dollar allows us to buy outrageously cheaply outside the USA and sell it for a high price here.
But just look at the fundamentals. It's kind of insane to think that just because you cross the Rio Grande, people in a factory make 10% of what American workers make. There just isn't any sense to it.
We would not have had a financial crisis if we did not have a mortgage crises. And we would not have had a mortgage crisis if we did not have a trade deficit, and we would not have had a trade deficit without the Fed printing lots money so we could have a high standard of living without manufacturing. The surplus of money for mortgages came from the countries who needed a place to park their dollar surplus which came from us.
Reply | Report Abuse | Link to this
Reply | Report Abuse | Link to thisOf course! It's the new conservative (I assume you somehow got here from Free Republic or Townhall) doctrine to blame recessions on COMMUNITY ORGANIZERS like ACORN. This is to me is the heightened example of modern conservative deprivation tank thinking. You believe exactly what you are told. There is absolutely no evidence to suggest that ACORN is responsible for this crisis, anymore than you can blame the AIDS or environmental crises on NGO's, another popular radical rightwing scapegoat.
Warren Buffet warned WALL STREET that it was making huge mistakes at the turn of the century. At this time, congress was controlled by rightwing deregulators who sought to turn Fannie Mae and Freddie Mac into competitive banking conglomerates that turned a profit. This, of course, was never their intent. It is ironic that the persistent meddling of free market conservatives with Fannie Mae has led to it being, once again, a Federal program meant to help those most in need. Too bad taxpayers have to pay for the mistakes of now thoroughly debunked free market ideology.
The entire fiscal crisis is based on one thing: lack of capital due to 30 years of tight money under Greenspan.
Reply | Report Abuse | Link to thisEach "buck" of American money was over leveraged because they were in short supply.
Now the answer is simple -- replace all the virtual bucks with hard currency.
Is that inflation? Yeah, you bet. There will be a lot inflation to make up for the natural inflation that should have happened during the horrific Greenspan years.
Luckily Benanke has just seen the light and has the printing presses running full steam. We need another 30 trillion just to cover the missing dollars of the last 3 decades.
Who will lose? Those who who hoarded dollars . Who will win? The laborers who have been cheated and short changed by tight money.
The loans would not have been made if financial institutions could not package them into salable securities. If the rating agencies that were responsible for protecting investors had not given these poor quality products AAA ratings, then investors would not have acquired a nearly insatiable appetite for mortgage-backed securities. Hence without buyers for their new products, financial institutions would have long ago stopped offering loans with untenable layering of risk. Ultimately, the root of the current financial crisis lies in greed. Too many people were pay exorbitant commissions based on conflicting interests. Risk management became a euphemism for continued justification of unsound practices. Vast sums of money supported a supply chain network in the middle of the process, and virtually no value was given to protecting either end of the apparatus. Where was the compensation, for people whose job it was to ask; Is this a good idea for the borrower? or Is the investor taking a reasonable risk with their money? That is the alpha and omega of how this financial crisis was created.
Reply | Report Abuse | Link to thisHow sweden solved its bank crisis:
Reply | Report Abuse | Link to thishttp://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=1&em=&oref=slogin
to solve a situation you have to understand it.
Reply | Report Abuse | Link to thisthere is no real liquidity without a middle class.
there is no middle class if outsourcing is "the way to go," to avoid support or labor costs...without middle class people spending the money that they have earned, there is no liquidity....if every billionaire buys seven refrigerators how many refrigerators will a thousand millionaires buy?
I know it's beyond most of you.
and bank fraud? try the current adminstration which has been working congress since 1950...Prescott Bush...the original "war profiteer"
George H.W.'s father....bank fraud and war profiteering aka "skimming"
your country at the hands of corruption. SEE BCCI, Bush, Silverado, MCI
.
lack of money isn't the problem...
Reply | Report Abuse | Link to thisthe problem is that the middle class has been harvested, and their "buying ways," have been curtailed by "no money anymore."
and "rich people," who've bought their way into control of the legislative process, and write the laws that benefit them and not the country are too stupid to realize that
when there is no product in GDP, that money ceases to have real meaning...
I know that is beyond you, but trading paper produces nothing....and not have any products produced in-country means dollars go out-of-country daily...
while companies pretending to be AMERICAN have 97 PERCENT of their labor costs going to overseas companies...
no in-country employees earning money?
so AMERICAN citizens got no money, they got no jobs, no matter how cheap it gets it's too much money when you got none, comprende?
the current administration has been _selling_
Reply | Report Abuse | Link to thisthat the economy is okay for 7.8 years now....but the U.S. of A. she don't _PRODUCE_ anything anymore....and white collar jobs are overseas too...
and 3rd World country managers are in_country replacing managers as well, and medical/architectual/modeling jobs are now being outsourced...
that's lower upper class people/jobs being harvested for the last three years...
whose next? the rest, aka the economy D.A.'s
The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. ...
you want to fix the economy???
Reply | Report Abuse | Link to thismake it a NATIONAL SECURITY ISSUE.....and messing with it treason.
stop outsourcing yesterday, bring customer service jobs in_country immediately....if it's a federal mandate for _all_ it'll be managed...
fix the infrastructure. make cities safe and livable, discourage driving by encouraging telecommuting
I could come up with 25 things that would generate GDP and REAL PRODUCT in_country in two weeks....
but then I'm not a corrupt government bush family member trying to scam you....I am an engineer
and I KNOW how things work.....I don't sell you propaganda as fact and make you stupid with incorrect premise and information.
.
The first comment from wfw HAS been noted by other observers.
Reply | Report Abuse | Link to thisThere is an overall aversion to allowing ANY economic downturn from the FED over the last 20 years.
This is indeed like the old approach to fighting every bushfire that comes along -- and thus allowing a lot of imbalances to build up over the years -- this is the economic equivalent to allowing all that underbrush and kindling to build up over the years.
This is now indeed causing a major conflagration.
listen closely,
Reply | Report Abuse | Link to thisbailing out the banks is like spraying topical disinfectant on a boil caused by an infection in the liver....
you may relieve the immediately visible symptom,
but you're going to die.
can you think past the next five minutes or are you all a bunch of two year olds' that can't put the cookie down, because you're in a
"mine" snit??????
CONGRESS and the corrupt whitehouse are emotionally 2 years old and they're holding the cookie bag.....you think they are going to share?
where's the proof simple toons? jeeeeeeeeeeeeeeeeeeeezeus.
.
catch a clue,
Reply | Report Abuse | Link to thissearch on Union Bank, BCCI, Silverado, bush
search on Union Bank, Prescott Bush, Remington, Standard Oil, steel, nazis
.
Seems to me that the gamblers (those into the derivatives) are most to blame, along with the deregulaters that dismantled the regulations put in to stop this from happening.
Reply | Report Abuse | Link to thisAmazing that people blame those that were the victims of the scammers who are making out like the criminals they are, the ones that made these loans then infected the financial sector with them.
It is worth recalling the history of the Golden Crescent drug trade, which is intimately related to the CIA's covert operations in the region since the onslaught of the Soviet-Afghan war and its aftermath.
Reply | Report Abuse | Link to thisPrior to the Soviet-Afghan war (1979-1989), opium production in Afghanistan and Pakistan was directed to small regional markets. There was no local production of heroin. (Alfred McCoy, Drug Fallout: the CIA's Forty Year Complicity in the Narcotics Trade. The Progressive, 1 August 1997).
The Afghan narcotics economy was a carefully designed project of the CIA, supported by US foreign policy.
As revealed in the Iran-Contra and Bank of Commerce and Credit International (BCCI) scandals, CIA covert operations in support of the Afghan Mujahideen had been funded through the laundering of drug money. "Dirty money" was recycled --through a number of banking institutions (in the Middle East) as well as through anonymous CIA shell companies--, into "covert money," used to finance various insurgent groups during the Soviet-Afghan war, and its aftermath....al queada....
The Laundering of Drug Money
The proceeds of the drug trade are deposited in the banking system. Drug money is laundered in the numerous offshore banking havens in Switzerland, Luxembourg, the British Channel Islands, the Cayman Islands and some 50 other locations around the globe. It is here that the criminal syndicates involved in the drug trade and the representatives of the world's largest commercial banks interact. Dirty money is deposited in these offshore havens, which are controlled by the major Western commercial banks. The latter have a vested interest in maintaining and sustaining the drug trade.
Once the money has been laundered, it can be recycled into bona fide investments not only in real estate, hotels, etc, but also in other areas such as the services economy and manufacturing. Dirty and covert money is also funneled into various financial instruments including the trade in derivatives, primary commodities, stocks, and government bonds.
so uh....help me out here....
Reply | Report Abuse | Link to thiswouldn't money laundering outfits be pushing subprime to feed the demand for money that wasn't looked at too hard? Word goes out, "just get a mortgage sold....we got backers...."
when I was in D.C. the drug mafia was making loans at Hotel in Tysons Corner, Virginia at a really good rate, sort of like a "job fair"....1993 any foreigners buy your banks lately?
how's that Bank America thing working out?
how's those Royal Banks working out?
wake up AMERICA.
hey pundits, if AMERICANs have historically consumed 70 PerCENT of what the world produces and they stop consuming,
'cause they gots no mone ay! what happens to the world?
can you say, "ash can" three times quickly?
grow up.
see with dismay at explanations of how providing housing for lower income people caused this financial crisis, people had to live somewhere and most, had to pay on rent more than the house payments they were getting into.
Reply | Report Abuse | Link to thisIn about 2003 or 2004 the economy started faltering, so in order to fuel the economy the government lowered interest rates. That itself started to fuel refinancing. Finance companies started to offer money with lower mortgage payments and most of them were outright fraud I also fell into that, until I started to read the documents that were given me to sign, and question what they were saying against what I was signing. Most people dont read or does not understand what they read specially lower income people and they fell prey to unscrupulous individuals and companies.
Then people with lower income just started to spend the windfall, but rich people started to speculate until reality finally set in. this was obvious. I knew that my house was no worth the newest appraisal and did not dear to speculate most did.
see with dismay at explanations of how providing housing for lower income people caused this financial crisis, people had to live somewhere and most, had to pay on rent more than the house payments they were getting into.
Reply | Report Abuse | Link to thisIn about 2003 or 2004 the economy started faltering, so in order to fuel the economy the government lowered interest rates. That itself started to fuel refinancing. Finance companies started to offer money with lower mortgage payments and most of them were outright fraud I also fell into that, until I started to read the documents that were given me to sign, and question what they were saying against what I was signing. Most people don’t read or does not understand what they read specially lower income people and they fell prey to unscrupulous individuals and companies.
Then people with lower income just started to spend the windfall, but rich people started to speculate until reality finally set in. this was obvious. I knew that my house was no worth the newest appraisal and did not dear to speculate most did.
Stop thinking of development as something vertical to be scaled up, but think of it as of something horizontal getting expanded and diversified with the resources available as natural limit for it. For the rest of information applicable to the case of the USA see Ellen Brown?s articles and book on www.webofdebt.org.
Reply | Report Abuse | Link to thisStop thinking of development as of something vertical to be scaled up, but think of it as of something horizontal getting expanded and diversified with the resources available as the natural limit for it. A very lucid analisys of what is going on in America can be found in Ellen Brown's articles and book at www.webofdebt.org.
Reply | Report Abuse | Link to thisSorry about the mess with my message.
Reply | Report Abuse | Link to thisSorry about the mess with my message.
Reply | Report Abuse | Link to thisI look for pieces like yours, as the title really drew my attention. One of the best , to the point explanations of our financial crises I've found so far. However, the "fix" portion of your article is quite abbreviated and perhaps (at least to me) a little unclear. The third step; "encourage expansionary monetary and fiscal policies abroad" and cause a "rise in their internal demand" is a real puzzler - how in the name of Jake do you do that?
Reply | Report Abuse | Link to thisThe present crisis is due to greed as the richer half of the Americans did not allow the poorer people to earn sufficiently and be able to buy a house without having to take a mortgage. Art 1 of the UNO declaration on human rights -everybody is born free and with equal rights- implies material components which now should be recognized. So everybody has a right to own a minimal place for staying or dwelling without others taking money from it against his or her consent. This does not regard the carpenter who makes a real contribution but concerns gains from mortgages, rent, etc.
Reply | Report Abuse | Link to thisWashington now should provide money for this without asking interest, except for compensation of inflation, say about fifty thousand dollars. People with a mortgage receiving this will have less burden and reducing the mortgage that amount of money will flow to the lenders and get them liquidity. Also persons wanting to improve their situation by moving can have those fifty thousand dollars, while those with a very nice house, not wanting to change, have overvalue which can be considered as balancing not receiving this sum.
Temporarily national economics may shrink, but not the most essential production. It is no big loss when superfluous things disappear. The White House meanwhile has to organize sharing of the better jobs in less working hours, which leads to free and not dependent citizenship.
The financial crises is caused by greed as the richer half of the Americans did not allow the poorer people to earn sufficiently for buying a house without taking a mortgage. Art 1 of the UNO declaration on human rights -everybody is born free and with equal rights- implies material components. One of this is that everyone has a right to possess a minimal place for staying or dwelling without others drawing money from it against his will. This does not regard the carpenter who offers a real contribution, but concerns gains on mortgages, rent, etc.
Reply | Report Abuse | Link to thisWashington now may lend say fifty thousand dollars free of interest, except for compensation of inflation, to holders of mortgages, who then can lessen these and will have a smaller burden in future. Also to persons wanting to move for improving their situation, while those with a nice home have overvalue which balances not getting anything. The lenders receiving this money via the citizens from the Treasury then get more liquidity.
Perhaps economics will shrink a bit, but not essential production. Superfluous things and services may vanish. The White House next must organize sharing of the better jobs in less working hours. Thus all Americans become really free withoud dependance on others or the state.
The proposed fix by the Admin , Fed and Treasury now approved by Congress and Senate is just throwing good money after bad. You can't build a house from the roof down, you have to start with the foundation. Same with the economy, the gov. needs to spend the $700b on foundation not the the leaking roof of the financial system. Banks making bad loans is the cause of this meltdown, why would anyone want them to start lending more?
Reply | Report Abuse | Link to thisPUT PEOPLE TO WORK, BUILD BRIDGES AND ROADS AND OTHER INFRASTRUCTURE, SPEND THE MONEY PUTTING PEOPLE TO WORK. In turn working people will either spend the money they earn thus putting it back into the economy or they may choose to save it at their local bank, the bank will then have money to lend.
WORKING PEOPLE AND SMALL BUSINESS ARE THE FOUNDATION OF THE ECONOMY, THE MONEY NEEDS TO BE SPENT SUPPORTING THE FOUNDATION.
Notes from a proletariat.
Reply | Report Abuse | Link to thisWhen I was young, credit cards were virtually unheard of (at least in my world). They were a novel and valuable thing to possess when I first found out about them, and they were pretty too. Forget getting one of these things if you were a low paid wage earner as most of the people I knew were. When finally earning the right to possess one of these wonderful things, most people used them properly; with respect and with pride. If you didnt, it was next to impossible to get a replacement. For some strange unexplained reason, our economy was doing pretty good too - growing at a steady pace, but without seeing many pretty pieces of plastic. But that was yesterday. My how things have changed. No more easy does it, things will come in time . Fast forward to now.
Now aint this just sumthin. We are witnessing the quickest redistribution of wealth that I can remember. The main difference as I see it is, overall our country has been enriched at someone elses expense. If some of the losers are foreign banks and institutions, well so be it. But we have gained wealth at the expense of our financial credibility and in the long run our economy will surely suffer.
Who are the winners (and losers) of this redistribution here in the U.S? I think ordinary American people for the most part. Home and land owners, developers, some stock market participants, land speculators, realtors, and all the businesses that took part in the exchange of this wealth. Some were short term winners: the participants in the transfer, and some are long term winners: the recipients of the excess cash. But who are the losers in the U.S ?; the banks and lending institutions. They now hold paper that cannot be leveraged. They are getting tangible property that must be liquidated, and new paper (although good paper) is generated. They now cannot guarantee the return of 100% of their customers and investors deposits of hard cash , much less contracted promised returns on the cash. So here comes Uncle Sam. He (and other regulated guarantors) have guaranteed a portion of investors and depositors cash. If the depositors have exceeded that amount tough, shoulda known better. The result of all this: some people who fell for the variable below prime teaser loans (and other wildly rigged loans) will have to return to where they came from. That may be as it should. Some excess cash will be taken from the hands of depositors and certain investors. Again, win a few, lose a few everybody cant be winners, some are gonna lose as it should be. Now where is the excess cash? Some of it went for tangible purchases; cars, furnishings, toys, you name it and some went to various good (and bad) investments; the stock market, savings accounts, and you guessed it; property, (so some winners became losers too because of reduced value of investments), and some excess went for better infrastructure.
But theres more excess cash out there unaccounted for its in the hands of a small percentage of smart and powerful players; Wall Street, Congressional members, and upper level corporate executives. Capitalism at its best - and worst. Thats the cash the average citizen is enraged about.
Who are the biggest losers of hard cash? To purchase all the excess goods and services, appreciated real estate, and new development that resulted from the booming economy, actual dollars traded hands. Where did it come from? After all is said and done, I think the infusion of new money (origin lenders) had to come from outside this country. So now, overall, the U.S. economy is in default and our government is attempting to make good on the defaults (ultimately to other countries). But I believe the Feds are doing it the wrong way. They are attempting to fix the problem by quick fixes , the immediate internal infusion of funds that really do not even exist. As I see it, all they are doing is printing the difference between the appreciated value and the current value of real estate. Add some pork too of course. And they are depending on the very same system that created this mess to make good on the loans. Wow. Half of these crisp new dollars wont go where they should and the rest is undervalued on the world market. Credibility, isnt that what this is really all about? It cant be replaced overnight.
Theres no ideas expressed here to solve any of this, proletariats dont do that, they just work on em.
you forget the declining real incomes, that would be the most important factor in my humble opinion sir.
Reply | Report Abuse | Link to thisyou forget the declining real incomes, that would be the most important factor in my humble opinion sir. Building models but ignoring the facts that real incomes for the majority are falling, but continue to lend as if they are rising. Encouraging people to be care free like the 50's and 60's on incomes when workers must agree to pay cuts and those that are cut from the work force must make do with working at Mcdonalds but still maintain the life style of the union job.
Reply | Report Abuse | Link to thisyou want to fix the economy???
Reply | Report Abuse | Link to thismake it a NATIONAL SECURITY ISSUE.....and messing with it treason.
stop outsourcing yesterday, bring customer service jobs in_country immediately....if it's a federal mandate for _all_ it'll be managed...
fix the infrastructure. make cities safe and livable, discourage driving by encouraging telecommuting
I could come up with 25 things that would generate GDP and REAL PRODUCT in_country in two weeks....
but then I'm not a corrupt government bush family member trying to scam you....I am an engineer
and I KNOW how things work.....I don't sell you propaganda as fact and make you stupid with incorrect premise and information.
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FANNIE MAE, and FREDDIE MAC
Reply | Report Abuse | Link to thisguarantee MORTGAGE POOLS and individual loans.....they don't make loans, nor do they encourage low income mortgages....
they are PRESSURED TO GUARANTEE THEM by corrupt banking officials...
they are also both backed by $800 BILLION DOLLARS worth of stocks and other financial instruments....
the culprits for the current fiasco? stupid BORN_rich people that have no experience with anything but influence peddling, bid rigging, price fixing, and using electoral fraud to get a hold of the government...
whoever has gotten a non compete bid from the first 6 years of the bush administration.
whoever paid Niel, George W., Jeb and George H.W.'s way through life....SAND BROTHERS in UAE, Kuwiat, Saudi
it's all a matter of record....you can attach their family holdings and anyone associated with them....
think UAE has some money? think the bushes would use it to manipulate markets????
please, SEARCH on George W. Bush, Victor Ashe, Jeff Gannon
see what they do that you don't know about.
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Discussion of Jeffery Sachs´s article became rather an exchange of readers´ ideas about how to fix the mess, and I think it´s good: all those elite economists will see that not having a degree is not equal to being stupid - everybody´s got some everyday experience in dealing with economics. But it´s also good to study history and to see how the same crises repeat throughout of it changing a bit of form, but not of essence. The idea to turn messing with the economy into treason is an excellent one - remember the Nazis. They did take Germany out of the crisis, but the problem is that it was by driving the economy on the military. And the problem with the military is that you have to use it, otherwise it will sink the economy again. And this is exactly the problem with today´s America. Mr. Horizon: CLASS is a notion that has always been primary in politics, above the notion of the NATION. It was Reagan - the "national" hero of American establishment - who started selling the USA off so to obtain ultimately a pyrrhic victory in the "Cold" War. Dividing and impoverishing peoples has always been the policy of all the oligarchies in all the times. European and Asian oligarchies and unfortunately American people gave the Reagan-Bush gang the money for their "anti-cyclical" policy of increasing the debt so to pay the Pentagon´s machine which simply needs now ANY wars against ANYbody and for ANY reason with the only purpose to justify its own budget. American judicial machine practices the same thing inside the country. It´s absolutely correct to say that there is no rich and poor, but those who make themselves richer at expenses of impoverishing the rest of people who just want to live. It´s happenning now at a global scale, only you have to push a little softer in the First World countries so their peoples wouldn´t identify themselves with those of the Third World. That´s exactly what the Global Establishment is afraid of: peoples figuring out how to live together, but then they won´t need the Establishment. And it´s time to turn this ideal into practice. For this read MARX (lose fear to the name, read his works by yourselves so to have an opinion on your own), updatings of his thought carried out, Charles Wright Mills and anything relating the Big Ideas to the Everyday Life. And all the above is the answer to Mr.Sachs, who by the way, has got a criminal record in the Global Establishment Politics on his own.
Reply | Report Abuse | Link to thisSomehow I knew even here Republican'ts would try to blame Bill Clinton and the democrats. Good luck with that. While long on blame they are short on the details. Yes, Georgey Boy saw this coming that must be why he wanted to put Social Security accounts into the stock market. There is really only one person who knew this was coming and that was Robert Shiller remember Irrational Exuberance.
Reply | Report Abuse | Link to thisI don't blame people with very little for trying to make money or get a big house. I do blame underwriter's and those whose profession is to assess risk. Clearly, they were not very good at their jobs irregardless of the laws established to promote home ownership. Home ownership does save money. Neighborhoods where people own their own homes have less crime, better schools and fewer problems so they would require fewer taxes.
I guess my biggest concern is that the baby boomers are starting to retire so they will be selling homes and cashing in their portfolios. So, I am not sure how people can be so sure their will be a rebound any time soon. Shouldn't we be looking at allowing in a large influx of immigration that is socio-economically mixed? This would help boost social security, housing prices and stocks over the long term.
Greed is the cause of all this, and it looks as if the the greedy have already taken their cut and run.
Reply | Report Abuse | Link to thisIt seems to me that clipping the wings of banks etc in the home and commercial property mortgage business is the way to stop this happening again. Preventing banks and other lending institutions from on-selling mortgages to other banks - especially foreign banks, would stop this activity dead in its tracks as the lender would have a fistfull of deeds and not a fistfull of cash to fund more mortgages. Mortgage activity would have to be funded by bank deposits and revenue instead.
Badger politicians to implement this measure to limit greed.
The article and analysis scratch the surface only. Treating the symptoms won't get us out of this. The root causes must be stopped.
Reply | Report Abuse | Link to thisHow we got here:
First is increasing demands on ROE pushing downsizing and salary stagnation. Consumers had no money to spend and this drovre buying on debt to keep going.
Second is 'cheap money'. Government policies of ow interest rates designed to keep consumers spending.
Third is foreign government such as Japan, lending at low rates to its own corporation who could then 'pump' the money into the U.S. to make the difference on interest rates as a kind of 'subsidy' Free money and lots of liquidity to buy those 'commercial paper' until it arises that they might *lose* the money they can't afford in which case they suddenly want to sell.
Fourth 'deregulation' which allowed money managers to build high risk 'house of cards' without oversight.
Fifth, a spendaholic and power mad president. Four trillion dollars and counting added to the national debt. Regardless of who holds that debt, there comes a day when there just aren't enough 'liquid money' as it is all sucked into the instruments financing the debt.
The Official Solution:
Keep increasing the national debt.. to pump money into the pockets of trhe money managers! Even guaranteeing that they can go on partying the same as before!
The real solution: Employment and salary increases to build up deposits and cut debt. Capitalism works only as long as the capitalists are restricted in diet. A greedy symbiote is a parasite that kills its host.
The article and analysis scratch the surface only. Treating the symptoms won't get us out of this. The root causes must be stopped.
Reply | Report Abuse | Link to thisHow we got here:
First is increasing demands on ROE pushing downsizing and salary stagnation. Consumers had no money to spend and this drovre buying on debt to keep going.
Second is 'cheap money'. Government policies of ow interest rates designed to keep consumers spending.
Third is foreign government such as Japan, lending at low rates to its own corporation who could then 'pump' the money into the U.S. to make the difference on interest rates as a kind of 'subsidy' Free money and lots of liquidity to buy those 'commercial paper' until it arises that they might *lose* the money they can't afford in which case they suddenly want to sell.
Fourth 'deregulation' which allowed money managers to build high risk 'house of cards' without oversight.
Fifth, a spendaholic and power mad president. Four trillion dollars and counting added to the national debt. Regardless of who holds that debt, there comes a day when there just aren't enough 'liquid money' as it is all sucked into the instruments financing the debt.
The Official Solution:
Keep increasing the national debt.. to pump money into the pockets of trhe money managers! Even guaranteeing that they can go on partying the same as before!
The real solution: Employment and salary increases to build up deposits and cut debt. Capitalism works only as long as the capitalists are restricted in diet. A greedy symbiote is a parasite that kills its host.
Am I the only person who is glad the bubble burst , maybe now house prices can get back to what they should really cost, and there becomes a time when a couple with good jobs can actually afford a good house!!! .
Reply | Report Abuse | Link to thisCapital One might even stop sending daily letters to take out credit with them.
You would be shocked how many people I know who have credit cards without even having a job!!! How irresponsible is this of the lending companies.
To clarify my own thinking, I called the current dilemma a "domino" effect with each block tumbling back to the block before it. Sachs label, the cascading effect, is similar, but more apt. However, what I find frightening, after reading all of the posted comments, is that most are ready to place blame on government or greedy business. Yes, they should draw blame. But what of the consumer, those of us who reached so far beyond our ability to repay? When do we belly up to blame table and eat our share of bitter pie? We're like children, always ready to blame the other kid. Water Woman, N. J.
Reply | Report Abuse | Link to thisperhaps some are like children, however, the preponderance of evidence points towards....
Reply | Report Abuse | Link to this6 YEARS of VETO FREE REPUBLICAN LEGISLATION with no oversight. IN FACT DHS and the Director of National Intelligence offices were formed from whole cloth.
Richard Milhouse Nixon, had Donald Rumsfeld, Dick Cheney and George H.W. Bush in the vicinity when he tried to pull a coup with the U.S. Government. I had friends on the JCS, that said they thought that he might try to use the military to avoid impeachment.
Let's face it. There has been wholesale use of the government and it's resources for the benefit of a few. IRAQ is a modern day example of attempted colonialism/ILLEGAL invasion of a sovereign nation, by a cabal of greedy to snare a fortune in the OIL INDUSTRY.....$10 BILLION A MONTH goes into that business dealforbigoil.
The middle class didn't expect to get harvested. Blue Collar and Tech White Collar jobs have gone overseas with no recompense and no jobs available that pay that well.
Let's get real....this is the Robber Barons redux. This is something Charles Dickens would write about, this is about the United States sinking in_country to 3RD WORLD living standards and responsibility to the citizens that created this great country. Anyone saying different is ignorant or knowingly spinning. I worked in Washington D.C. for over 20 years, it is INSIDER WASHINGTON and a government that serves the upper class/CASTE based LEGISLATIVE SYSTEM....an engineer could clean the mess up in a year, easily.
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Point, real estate agents represent the sellor. The buyer has to QUALIFY for a loan....the bank and or mortgage maker qualifies the buyer. The error and responsibility rests solely with the bank....an unqualified buyer is not supposed to get a mortgage.
Reply | Report Abuse | Link to thisThe legislative body of the United States has abdicated it's responsibility to the citizenship by acting wholly in favor of the Corporatocracy. Let's look at credit card lending. People began declaring bankruptcy, defaulting on credit card debt. The credit card debt lobbied Congress to put in place rules to prevent bankruptcy judges from declaring a debtor harmless from circumstances of his bankruptcy because it happened through no fault of the debtor....catastrophic illness, businesses being moved offshore, flooding, disaster. Historically the United States had enacted legislation which prevented DEBTOR PRISONS.....
or indentured servitude. IF THE CREDIT CARDS COMPANIES COULD NOT GET THE LAWS CHANGED IN THEIR FAVOR....there would have been an outcry to stop outsourcing, as the credit card companies began registering the loss of profit. SINCE THE LEGISLATIVE BODY CHOSE TO PROTECT THE CORPORATION RATHER THAN THE CITIZENS......there was no natural addressment of what outsourcing was doing to the liquidity of the United States.....no middle class, means no water in the money creek.....middle class spend over 90 PERCENT of what they make...investment in the MIDDLE CLASS INCREASES LIQUIDITY....retail wages are poverty or lower class wages....no home, no car, no insurance, pure subsistence....food and shelter of a minimal sort.
For every middle class person now working retail, 3.4 out of 4 former manufacturing workers are no working retail, there is an insurance company that is losing money, a refrigerator company that is overstocked, and a car company that has lost a customer, a computer or television sale that won't be made, and a mortgage that may have gone into default...
You figure it out. PLUS, George W. Bush and friends have been hiding the data from the public purposely.....embezzlers typically do that, you're lucky that they are still here and the theft has been discovered. Proper action would include arresting the Executive Branch enmasse and check the books.
I would.
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an apt metaphor for "what has happened," would be a family grocery store being run by a crewe of misfits that is more intent upon....
Reply | Report Abuse | Link to thisdrinking, eating free, and emptying the till and letting the next shift tell the family that
they have been robbed by the night crewe...
same ghetto mentality. This is the 2nD BUSH FAMILY BANKING BAILOUT, George H.W. Bush and his son Neil Bush were involved in the first one. Jonathan Bush, George W. Bush's uncle....who helped fund his run for presidente' in 2000 was fined for MONEY LAUNDERING at the RIGGS BANK....what did he money launder? Some say payment for the 9/11 HIJACKERS....sequentially numbered checks from the SAUDI ARABIAN EMBASSY....Saudi Ambassador, PRINCE BANDAR....wrote I believe $25M worth of checks.
SEARCH on BUSH CRIME FAMILY to read that one.
the bush family has been involved in money laundering and banking fraud since the 1930's....and war profiteering since the turn of the CENTURY circa 1890's...
SEARCH on Union Bank, Prescott Bush, Nazis, Remington, Steel
you citizens, need to understand....John McCain's lying is not an anomaly, it's standard for his crowd. The republicans invited Nazi propagandists to join the party in the late 1960's and early 70's....Nixon and George H.W. Bush did the inviting. Allen Dulles, the future Director of the CIA, hid the Bush family investment in the Nazi war machine from prying eyes, so that Prescott could become a senator....George H.W. flew one run at the end of the war....a milk run, but an engine caught fire and he had to bail....his tail gunner and one other crewman found out he had ejected after they hit the water....the pilot George H.W. Bush ejected without warning the other crewmen....they died on impact....being the son of an important man he wasn't court martialed. Just like George W. wasn't court martialed for leaving the Coast Guard and not reporting for medical examination.
SEARCH on Dan Rather, lawsuit, Karl Rove, George W. Bush
it's your country, quit smiling politely as they stiff you.
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I am impressed with the utter disconnect between all these highly ideological posts and Prof. Sachs's point.
Reply | Report Abuse | Link to thisThat said, I think there something wrong with his accounting concepts. He says the cost of investing in the future can be put off until the future by selling bonds. That's not true.
In the short run, gross world product GWP is fixed. It can be partitioned into investment uses and consumption uses: GWP=C+I. (I assume that government activities have been allocated between investment and consumption.) Prof. Sachs proposes to increase I by 1% of GWP (for example). It follows that C is decreased by 1% of GWP.
Floating bonds is one way to finance the change. In standard theory it works by driving up interest rates enough so that people shift away from current consumption towards savings by an amount equal to 1% of GWP.
I'm signing my real name because I hate the culture of careless thinking and personal attack that is fostered by Internet anonymity.
David Burress
Ad Astra Institute
Lawrence KS
My apologies. I thought I was responding to comments on Prof. Sachs's November column.
Reply | Report Abuse | Link to thisDavid Burress
Unless the problem of the trillions of dollars of CDS's and other derivatives is solved, then everything the author has suggested is nonsense. The black hole of debt will continue to need to be satisfied like some volcano god of antiquity. Instead of throwing virgins into it we should be throwing Messrs Bernanke, Paulson, Bush, Cheney.....................................
Reply | Report Abuse | Link to thisUSAs FAST ECONOMIC RECOVERY IN 2 STEPS
Reply | Report Abuse | Link to thisStep 1 - STOP THE BAILOUTS and FIX THE BANKS
- Solve the loan problem.
- Solve the derivative problem.
- Reassemble whole loan mortgages
The U.S. economy is shrinking fast, because businesses cannot get loans that they need to operate normally. Banks and lenders already own $ billions in bad loans, and they are afraid to make new loans. The government gave $ billions in bailout money for banks to start lending, but banks hoard the money to save themselves.
Our financial system became untrustworthy, because it mixed $ billions in bad loans in with the good loans. Now, banks do not trust any of the loans, and the entire credit market stopped working.
The U.S. economy will continue to shrink until we untangle the loans. Once the bad loans are isolated, they can be fixed one at a time. Then trust will be restored. Credit will flow, and the economy will grow.
So far, our government is spending $ trillions on bailouts and pork projects, out of ignorance and political ideology. The real solution is much less expensive than that.
The USA has fixed this problem before, and it is not hard to fix again. This is how:
A) Start with the Resolution Trust Corporation (RTC), which the federal government setup to solve a Savings and Loan problem in the 1980s.
B) RTC buys up securitized mortgages and derivatives to reassemble whole mortgage loans.
1. Securitized mortgages are home loans that have been bundled into large groups and sold to investors. A group of about 4,000 mortgages can be securitized and sold just like a stock or bond. Investors like to buy groups of mortgages because they receive all the monthly house payments.
2. Some groups of securitized mortgages were subdivided into smaller pieces, called derivatives. However, both of the fancy names refer to mortgage loans.
3. The problem is that many bad loans (with no payments) got mixed in with good loans. That turned the all the securitized mortgages into bad investments, which are ruining our banks. It is a huge problem, and the government has to fix it, before our economy will recover.
4. Total securitized mortgage and derivative market is estimated at $1.3 Trillion by a Professor of Economics at Ohio State University. (Also see the graph from Deutsche Bank at The Death of Securitized Mortgages http://www.nakedcapitalism.com/2008/06/death-of-securitized-mortgages.html )
5. Government should buy up securitized mortgages and derivatives at the lowest market price, which is set via a reverse auction. (Google on reverse auction .)
6. Squatters, who sit on their mortgage derivatives, in order to extort big $ from the rest of the system, can be forced to sell. (Law is analogous to eminent domain, or sales forced on cybersquatters that registered the domain names of well-established companies.)
7. Government pays mortgage derivative squatters at market price set by previous reverse auctions, perhaps with a penalty to the squatters.
8. Sellers give up all rights. No new law there.
9. Banks, investors, and insurers now have cash instead of questionable mortgage loans and derivatives. So, the banking system is healthy with cash to lend.
10. Credit will flow, and the economy will grow.
C) Government reassembles whole loans from securitized mortgage components and derivatives.
D) Government sorts the newly reassembled whole loans (mortgages) into groups according to risk/quality.
1. Government uses traditional mortgage experts and guidelines to sort the home loans into quality groups, for example, a high quality group would include homeowners with 20% (or more) equity in their house at todays market price; and house payments that are 25% (or less) of homeowners monthly income.
E) Government (RTC) sells the reassembled whole loans to traditional mortgage banks.
1. This solves the problem of renegotiating home loans with homeowners. Read on.
2. Law must be changed so that reassembled whole loan mortgages cannot be securitized into derivatives, again.
3. An important purpose is to reconnect each homeowner with his lender, and vice versa.
4. It eliminates incentive for mortgage lenders to make predatory and junk loans. If the loan fails, the lender is stuck with a bad loan.
5. Government recovers much of the $1.3 Trillion purchase cost, because government auctions off the reassembled mortgages.
6. The lower quality, more risky mortgages would fetch a lower price at auction.
7. Mortgage companies, that buy the risky loans, will have more room to negotiate with the homeowners.
8. Some homeowner negotiations will not succeed. Those homeowners will move into affordable rentals. (The government does not owe everyone a free house.)
9. Other renters would like to buy those empty homes at reduced market prices.
10. If the government gets stuck with some homes, the government could profit by selling the homes when the housing market recovers.
F) Insurers like AIG may be reorganized through bankruptcy.
1. Securitized mortgage pools never made business sense, unless they were protected by various insurance schemes.
2. Those insurance schemes always were a scam.
3. Insurance only works when most of the insured assets are never hit with a disaster. That is why flood insurance does not work very well. A major flood ruins all the buildings in a large area, all at the same time. So, the insurance company goes broke, and people that bought the insurance are not protected. That is the problem with securitized mortgage insurance. In an economic downturn, the disaster hits all the houses at the same time. Securitized mortgage insurance was doomed to fail, and the insurance companies went broke in 2009.
4. Companies that ran the insurance scam may have to go through bankruptcy.
5. Never ending government bailouts for insurers like AIG are just throwing good money after bad. So, stop the bailouts.
This plan is inexpensive, tried and true. It leaves the banks healthy, with cash to lend. It restores trust in the credit markets, so loans will be made. It reassembles mortgage derivatives into whole loans, and restarts traditional mortgage lending. People can get loans to buy homes. Credit will flow, and the economy will grow.*
Step 2 STOP THE PORK and START THE RECOVERY
*The economy will grow if President Obamas massive tax, borrow, and spending plans can be stopped, before he creates another Great Depression. Presidents Hoover and Roosevelt already tried to tax, borrow and spend their way out of a recession in the 1930s. Instead, they created the Great Depression, which lasted 12 years. Straight as he goes, President Obama is doing it, again. Nevertheless, cleaning up the securitized mortgage mess is a necessary first step.
If President Obama announced Steps 1 and 2, today, the stock market would go up within hours. Investors love a real business plan, instead of a political pork plan. Millions of people will be wealthier, feel wealthier, and have more money to spend. That will jump start the economic recovery within days.
I was surprised and disappointed to read in Scientific American an opinion piece that is so grossly neither scientific nor American. Sachs' assertions about the correctness of Obama's "vision", budget priorities, and financing (higher taxes on "the rich") reflect a big-government socialist philosophy that one would expect to have been tossed in the dustbin of history after the fall of communism (when Sachs advised East European governments) and certainly after the current financial crisis, which was catalyzed by the federal government. Sachs conveniently presents only one half of the story when he states that the free market tends to under-provide public goods, requiring government to step in. First, there are solutions other than government, and second, government provision introduces other inefficiencies, e.g. those famous by Public Choice theory. It was a nice final, mocking touch to include the portraits of Washington and Jefferson: these men fought against a dominating, taxing central government and and architected the US Constitution of enumerated federal powers and sovereign states. They would vehemently disagree with Sachs. It was Washington who said, "Government is not reason, it is not eloquence, it is force; like fire, a troublesome servant and a fearful master. Never for a moment should it be left to irresponsible action."
Reply | Report Abuse | Link to thisLook at the following:
Reply | Report Abuse | Link to thishttp://asktahir.blogspot.com/2011/09/political-program.html
That plan should fix everything alright.
Yes I agree with what you are saying. But you are missing the big picture. The US needs a quick fix with revenue. And I am not talking about taxing the rich.
Reply | Report Abuse | Link to thisI am talking about taxing income streams that already exist but are not taxed.
Those of you who are yelling at the computer that we must stop spending are almost right, but not totally. We have to stop "wasting". Don't stop spending altogether. There are those in real need that must be given some of the fruit of our labor. That's just the way it has to be.
But lets remember the three "C's" to every problem, the complaint, the cause, and the correction. Our governments always get the first one and the last one but inevitably leave out the middle one; the cause.
Prosperity is a balancing act between revenue and spending. We need both to have a continuing prosperity for everyone. Look at China. They have lots of revenue but no spending (for their people). Hence, they have no prosperity. They have to keep loaning to the US and Europe because without them they will have no revenue.
The US has lots of spending but have chocked off their revenue with an over burden regulatory situation. But the political environment in the US is in such a strangled hold of "us vs. them" that they can't see the forest because of all those darn trees.
But we do need a quick fix but where do we find it. The US can start by looking at its two biggest non-taxed revenue streams that exist within its borders; gambling and drugs.
There has been some talk of legalizing online gambling once again. There are many articles starting to pop up suggesting just that. But that legalization won't come without problems as stated in a nice article at <a href=http://pcmenterprises.com/legalize-online-gambling.html>http://pcmenterprises.com/legalize-online-gambling.html</a>
And some states are on the verge of legalizing the drug industry but there has been too much federal resistance for them to get on board and pull the trigger to get the laws enacted.
These are not the cure all fix all remedy that will have everything hunky dory in just a few months or years. Yet, they are a quick fix that will go a long way. Just like a jump start on a diet always helps one's attitude go in the right direction when they see an good weight loss in 20 or 30 days.
Wow! It's hard to argue with finding new streams of revenue and ridding yourself of drug lords all at the same time. Go figure!
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