Saving the Economy WITHOUT the Bailout

It's only called the bailout because our tax money is going directly to the Wall Street screwups who created the crisis. It will definitely save their companies and jobs and, just maybe, the American economy.

But what is the crisis? From what we're told, it's because new money, in the form of mortgages, business loans and credit purchases, is not moving into the economy because the lenders can't get their hands on that money. These operational funds used to come from loans between banks. But now the banks are frightened that they'll never get it back because the lenders are overleveraged and face bankruptcy.

So let's set up an alternate source for these funds. Instead of bailing out Wall Street, put the half a trillion dollars of taxpayer money into a special fund which will only be used for new loans issued by lenders who enroll in the program. The government will charge low, even "survival" interest rates for qualifying lenders. But the economy will have a continuing supply of real money until a new regulatory scheme is created. And we can actually take more than two weeks to think about it!

One important point. The participating lenders should be paid by taxpayer money for issuing these loans. I think that the brokers, management and staff of these companies should be compensated at plain government salary levels but only for the loans that use these funds. That is because some of the lenders may seek bankruptcy protection while in the program, and the program should be insulated from the process.

I think this suggestion is more realistic than having the government issue loans directly, as I hinted at in my post last week. We don't have the time or expertise to set up a new agency so fast. We can use banks and lenders who do this for a living. The difference will be that greed will be banished, and it will be replaced by strict governmental oversight. At least for the duration of the crisis.

Finally, these same lenders who will be participating in the program will get NO IMMUNITY if continuing investigations by the FBI, the SEC and the Justice Department discover fraud. And they will still have to face their creditors and shareholders. Yes, I expect indictments out of this.

This is better than the illusory bailout. The participating lenders should be eager, even grateful to have this chance to redeem themselves --as feeble as it is. But it is an appropriate response to the greed and betrayal of the public that stains this historic event.

The NEW American Dream

The present financial situation is still precarious. Most likely, Congress will shiver and huddle and decide, after all the posturing, that they don't want to face the music after a new "Great Depression" descends upon us.


So it looks like the taxpayers will be forced to roll up their sleeves for the unavoidable blood transfusion to save a Wall Street on life support. Ah, well.

On reflection, we are going to be working in a new economy, one where this kind of crisis will not happen again. But what will that economy look like? Will it be as compelling as the last one?

I admit that I have no idea what the new economy will look like. I do know that the old one is dead.

That old now dead economy was called the "American Dream" economy. It did a helluva job for this country after World War Two, and that was because most of the country wanted what the economy produced.

We produced "The American Dream". We struggled to get it, and we struggled to keep it. Then we passed it on to our children so they could continue the struggle.

What was it? It was more than just that house in the suburbs with the two car garage. Much more.

The dream was the house, the mortgage that could be paid with one secure salary from the same employer until retirement.

It was not one, not two but a car for everyone in the family. This was because once Dick and Jane hit sixteen, they wouldn't be satisfied with Mom and Dad driving them to school or to parties at the friend's house. And of course, the dream included the car loans that kept all those dealerships in clover.

It was the two week vacations for the whole family -- every year -- to Washington, to New York for the Broadway shows, to Disney World, to Yellowstone.

It was gifts and parties and barbecues and dinners and weddings for all the brothers, sisters, aunts, uncles and cousins, cousins and MORE cousins.

It was countless outings to movies, home team games and restaurants every weekend.

The American Dream lasted a long time. How long? It lasted from the time, long, long ago, when people actually spent time balancing their checkbooks (Does anybody still remember such a time?) until today, when you don't know how many credit cards you have.

It included every new gadget that could possibly be stuffed into the closets of the American Dream home, and it included all the extensions of the home to fit more closets to hold these gadgets.

It included four years plus of higher education for every child, but especially for the ones who had no particular interest or intellectual curiosity about anything they would learn in college except how the degree could get them their own American Dream, and if it would be bigger than they one they grew up in.

It included the swimming pools, patios, redesigned kitchens and landscaping that would be classified as "Home Improvement" and which would result in the huge profit everyone expected once they sold their American Dream home. This home became the equity that people expected to grow, as part of their estate, even though their ever more expensive lifestyle was being financed by using that home as still another layer of debt that would eventually be paid by the increased value of that home.

The dream did the job of maintaining this economy because Americans made an unwritten pact with each other to dream it, in unison, at the same time.

The alarm that woke us all from this dream is called the Wall Street bailout.

All functioning economies need a dominant theme to energize its citizens, a "dream" if you will.

America will need another "American Dream" to regain economic stability again. I don't know if it will be as dominant as THE "American Dream", the one that gripped the imaginations and yearnings of everyone who lived here or came here from every corner of the world.

That dream is over.

The "Unthinkable"?

The trillion dollar Wall Street bailout plan goes to Congress this week and, as an uninformed taxpayer, I have some questions, the foremost being what happens if we don't do it.

Believe me, it's no fun watching the Sunday morning news shows and seeing so many of the big players, all of whom are much, much smarter than me, arguing for the bailout, but not even trying to answer that question.

I'm a free marketer, myself. I believe that poorly designed, sporadically enforced regulation is worse than none at all. I was appalled by the AIG rescue. That's irrelevant now. We're being given a choice between two kinds of socialism, and that's it! This week, we have the spectacle of hundreds of thousands of Wall Streeters creeping on their bellies to Washington and begging for regulation. The first socialist choice is bailing out these institutions in order for the "system" to continue to function. In that case, we will "own" all of these mysterious assets, which we can then sell off to....well, somebody. The architects of the plan say these securities are worth something, but they don't know what. The important thing, however, is to keep the system moving because the consequences are "unthinkable".

I'm sorry, but I want to think about the unthinkable. What if we simply forgot the bailout and moved the government into the same position as these venerable banking institutions. After all, the bailout won't be any good if the system is allowed to continue at the current level of regulation. Public confidence demands an accountability that never existed before. Do we know what these new regulations are? No, not yet. We're told that comes later, after the market "stabilizes". Do we have the new regulating agencies in place yet? No, that's later too.

So what we're told is that "Main Street" Americans need these same institutions in order get get the loans and credit to keep a roof over their heads and their businesses afloat. But why? What is the private financial sector offering that inspires confidence in them at all? After all, they are insolvent now. If they have no real money to offer, what do they have?

I think nothing. The fact is, the regulatory system we need doesn't exist yet. It will come from Congress, and we'd better not try to coast along on the present system without it. That fact leads to a different conclusion.

Let the government -- at least temporarily -- assume the role of direct lender, and demand real collateral for new loans. We can start with the trillion dollars we are NOT using for the bailout. That means a plain direct relationship, debtor to creditor, with no gourmet "derivatives". No bonuses, no CEO parachutes. Just common civil servants providing direct financial assistance to borrowers. After all, the amount of regulatory oversight we'll eventually have, even with the bailout, will have government fingerprints on every transaction. Lots of them.

So what about that "unthinkable"? What will happen to the "Main Street" economy if we don't do the bailout?

I don't know. But I do know that the "experts" have not convinced me the bailout is necessary to prevent disaster. Everything I've heard from them leads me to think the disaster is already here, but it's too important to preserve the current financial system to let it fail.

But face it. IT HAS FAILED!

Without the bailout, debts will be unpaid, many financial institutions will go under, and the cost will be phenomenal.

I say, that's why we have bankruptcy judges. Let the creditors and stockholders line up and salvage what they can.

In the meantime. let the taxpayers use that trillion dollars to keep the economy moving until a legitimate financial system is established, one with pro-active enforcement powers.

"Main Street" will feel pain, to be sure, but not as much as the "immortals" on Wall Street. But isn't that better than what this as yet undrafted "rescue plan" offers us?