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.