During the past few weeks, I, like millions of Americans, have been, hastily watching the unfolding of one of the worst financial debacles in the US’s financial and economic history. Some of the experts have called it: “the worst since the 1929 Great Depression”. I say potentially much worst. The collapse and downfall of mortgage giants Freddie Mac, Fannie Mae and other industry moguls, are ghastly enough to have everyone in America fretful on what lies in the days ahead. The elite groups of failed giants rank among our nation’s leading financial service institutions - accountable for trillions of dollars of overstated assets. Assumingly, assets backing most of the nation’s mortgages, securities, derivates, savings accounts, retirement accounts, and virtually every other instrument said to guarantee the foundation of our nation’s economic system. The impact of their demise, could indeed pose a potential financial disaster of cataclysmic proportions for every American – now and in years to come.
As to what led us into this catastrophe, I personally do not think there are any easy answers. There were, as far as I am concerned, many variables that contributed to this downfall. If you twisted my arm, however, for a one word or sentence as a response, I would lay the blame mostly on “government deregulation”, greed, financial irresponsibility, and lack of accountability with both Republicans and Democrats, equally sharing a portion of the blame.
Assuming I am right on my presumptuous conclusion of the causes, I propose to you then, that the $700 billion dollar “bailout” now being introduced by the US Congress, should, in fact, be rendered unacceptable to taxpayers in America. By virtue alone of the fact that the economic future of every American is at stake here, each and every taxpayer, all 139 million of us should really give utmost consideration to this “bailout” proposal and the ensuing consequences as a result of the same. After all, in it, we may find either “a true new beginning or the true beginning of the end”. As far as I am concerned, you would have expected the 2001 Enron demise, to have been, at best the ending, and at worst a deterrent to financial disasters of this magnitude. Instead, seven short years and a few trillion dollars after the fact, we find ourselves another disaster, if yet of greater proportions. Truly worrisome.
The most troubling issue I have with the “bailout” proposal is the fact it is being proposed mostly by the same culprits of the debacle - the same fraternity of corrupted statesmen, political “greed-heads”, and failed financial wizards. By the same political clan, who have, for the past eight years been taking in money from Freddie and Fannie - two of the largest donors of campaign funding and “soft-money” contributions to the proponents and their political parties. On this issue and this issue alone, for starters, I contend the righteousness of the $700 billion dollar number. I have to, no doubt, assume certain correlation to the value of highly over-sated assets in the cooked balance sheets of the failed. As such, my trepidation grows. As well it should. Nonetheless, even if I we were to give the culprits a non-deserved benefit of the doubt vote of confidence on the $700 billion magic number, even then, I contend to question the merits and the foundations for a proposal, hastily prepared in a matter of hours only to accommodate the bells of Wall Street.
At the outset, I would argue the $700 billon dollars should never be given in such a manner where government purchases the over-inflated assets, considering the real value of the latter is now virtually unascertainable. The proposed bailout would vest government with the power and authority to conduct business on our behalf. If government has, admittedly, accepted their failed ability to administrate our affairs, imagine the evils that could come with yet their involvement in an area historically saved by capitalism for the private sector alone. Giving government such power, I say, could indeed be potentially catastrophic.
A bailout, such as the one now being proposed will, more likely than not, trickle down into the economic chain to expose ourselves to more of the same. As I stand here before you with a firm conviction for my opposing the tenants of the proposal now offered, I humbly tender an alternative solution –one which, notwithstanding the inherent lack of expertise on which it is conceived, it nevertheless intends to mitigate the arguments, so as to challenge the merits of the solution to the nation’s greatest crisis ever.
To begin with, in my reviewed bailout model, I would let capitalism and free-enterprise, do what capitalism and free enterprise do best, that is: make us money. As an alternative bailout, I would offer the $700 billion dollars in the form of a short-term loan, with a 5 to 10 years payback timeline at a 2% low interest. I would earmark funding for the private sector’s financial services of America, with a priority agenda aimed at the mortgage market and the foreclosed assets.
I would, at the same time, set the minimum reserve rate at 20%, to create the “multiplier effect”. Case you may not be familiar with this basic economic principle: “The multiplier effect depends on the set reserve requirement. So, to calculate the impact of the multiplier effect on the money supply, we start with the amount banks initially take in
through deposits and divide this by the reserve ratio. If, for example, the reserve requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in reserve. However, the remaining $80 can be loaned out to other bank customers. This $80 is then deposited by these customers into another bank, which in turn must also keep 20%, or $16, in reserve but can lend out the remaining $64. This cycle continues - as more people deposit money and more banks continue lending it - until finally the $100 initially deposited creates a total of $500 ($100 / 0.2) in deposits. This creation of deposits is the “multiplier effect”. http://www.investopedia.com/terms/m/multipliereffect.asp
On a $700 billion dollar loan, the multiplier effect would generate $3.5 trillion dollars of additional taxable deposits as well as interest revenues of approximately $72 billion dollars. The depleted assets now held by all the failed giants would enter into a “free-market” system sold to the highest bidders in the private sector, amongst investors not the government, thus providing for profit incentives both to the financial services community and banking industry of the private sector - a feasible and accessible objective by the newly-created funding sources.
Considering the root-core on the causes of the debacle, I would implement the $700 billion dollar bailout loan with the strictest contingencies, aimed exclusively at protecting taxpayers from the reoccurrence of a similar catastrophe. To begin with, I would subject the bailout to the revocation of Clinton’s Financial Services Modernization Act of 1999 and the reinstitution of Teddy Roosevelt’s New Deal Glass-Steagall Act of 1933. I would immediately charter two new government agencies specifically as oversight and regulatory instruments of the government. The agencies would keep lower tear employees of Freddie and Fannie, to preserve employment of the greater portion of loyal and dedicated employees that fell victim to their corrupted administrations. Considering the magnitude of the debacle, and potentially ensuing catastrophic consequences, I would have these two agencies operating under our Homeland Security Program, acting independently of the FED, the Secretary of the Treasury and otherwise conventional financial regulators.
Furthermore, the agencies would function with checks and balances power, much in the image of our Congress; looking over each other to: regulate, monitor and oversee all of the nation’s financial and banking service activities, with a priority focusing on reviewed criteria aimed at ensuring a healthy repayment of all debt-service incurred by the borrowing community of the nation. I would immediately introduce laws in Congress designed specifically to insulate and prohibit any government institutions and political participants associated to the financial services industry of the US, from either issuing and /or receiving and /or engaging in any lobbying expenditures, campaign and /or “soft-money” contributions, such that same may induce corruption to the system.
I would introduce laws that would disable, forever again, executive administrators being able to receive compensation packages incommensurate to the financial strength of their institutions, more so when the latter’s pose a risk to the nation’s economic stability. I would charge the newly created government regulatory agencies with the implementation of revised accounting criteria and accounting practices exclusively formulated to monitor an actuary value of all assets and the development of specific criteria and rules relative to unnecessary expenditures. I would also introduce laws that would limit governmental participation of private-interest groups such as A.C.O.R.N., and others similar, from political influence to the newly created regulatory agencies.
Finally, I would subject my bailout to a complete government re-organization in the finances and economic sectors of the administration. Such a reorganization would include the firing or termination of the Chairman of the SEC, Christopher Cox, the Secretary of the Treasury, Henry M. Paulson and FED Chairman, Ben Bernake. Their laxity and inability to prevent this catastrophe, render them, as far as I am concerned, ineligible for the posts they now hold.
In summary, my dear friends, as far as I am concerned, at the root of all our evils, once again, is the pervasive hand of engineered socialism at its best. As I offer my bailout alternative, I can almost hear my liberal critics chastise me and chant to the Obama tunes, as to the impending neglect of my proposal to all the poor and the underprivileged. To them I say, for the past ten years both Freddie Mac and Fannie Mae, have been catering well prepared mortgage-backed packages crafted for marginal borrowers, with little or no regard for their ability to repay –all bannered under presumed social equality tenants. The end result, thus, was inevitable as both lenders and borrowers entered the orgy with a complete awareness of these results. It is about time we all understand that capitalism and socialism simply cannot coexist to where their preclusion is as obvious as the persisting crisis we now face of unprecedented proportions.
Your social tenants, my liberal friends, mind you, could and should still be accommodated somehow in any bailout within our capitalist economic system. The accommodation, however, should come in the form of yet less treacherous consequences. Housing issues for the poor and the underprivileged are more a matter of grants and charity than they should be as foundations for a sound economy as was the case in our present debacle. A.C.O.R.N. and the rest of your left-wing liberal organizations should concentrate their efforts on community service programs and leave our free-enterprise capitalist system alone once and for all.
In closing, I offer you my humble apology for what may indeed be construed to be an overly-simplistic and flawed economic bailout alternative. Grant you, I do not propose to be an economist or a financial expert. I offer my thoughts exclusively as a concerned taxpayer. The thoughts and issues proposed may, for all I know, lack the know-how and expertise more akin to my esteemed friends in the financing and banking communities. To them and to all of you, I say, I may very well be wide off the mark as to our common objective in resolving the rather vast financial problems facing our nation. You are invited to challenge the tenants of my proposal. If you do, however, I would expect you to offer your challenges in a manner such that you may proof me wrong and educate me on the issues.
Your challenges will only serve to enhance my appreciation for yet a better alternative, in which case we would only be a step closer to meeting our objective of resolving this crisis. To that effect, I bid my proposal today to be, on its own merits or lack thereof, merely offered as: “food for thought”. God bless us all.