My Take on the Paulson Plan
| Sun Sep. 28, 2008 11:09 AM PDT
MY TAKE ON THE PAULSON PLAN....Will the Paulson bailout work? Is it the really best solution to our financial problems? Before I answer, my standard caveat: I'm a semi-informed, non-credentialed amateur who has no experience in the finance world and only barely understands exactly how this crisis has unfolded. If it makes you happy, you should feel free to echo this critique in more biting and sarcastic terms in comments.
That said, I think the answer is yes and yes. The leading alternative appears to be some version of nationalization: Recapitalize failing banks, nurse them back to health, and then sell off the government stakes sometime down the road. One advantage to doing this is that it automatically forces banks that made the dumbest mistakes to pay the highest price for rescue. Sweden, which faced a financial collapse in the early 1990s that was similar in some ways to ours (though different in others) did this and it seemed to work OK for them.
And it may yet come to that. It's not a serious alternative right now because there's simply no political support for it (there's barely political support for the Paulson plan), but I'm skeptical that it's the best solution anyway. Why twiddle our thumbs waiting for banks to fail? Why prop up entire institutions when their problems are narrowly focused on a particular class of assets? Who decides which banks are worth nationalizing and which ones aren't?
The Paulson plan, by contrast, seems to have a pretty good chance of accomplishing multiple things:
Thanks to falling house prices and a general panic, toxic mortgage assets are currently valued by the market at about zero. This is plainly absurd: they're worth quite a bit less than face value, but they aren't worthless. The Paulson plan, by creating a mechanism to pay some kind of reasonable price for these assets, cleans up banks' balance sheets and increases their capital base at the same time. Doing both those things is better than recapitalization alone.
Creating a controlled market in these assets should help to jumpstart the public market for all the toxic waste currently on bank balance sheets, not merely the parts of it that Treasury purchases. This will help the balance sheets of every bank in the industry, even the ones who don't participate in the bailout. In this sense, we're getting a very big bang for our buck.
Once prices are set, we'll have a much better idea of which banks really are insolvent — or are likely to become insolvent shortly. This is pretty useful information. It gives us a better idea of the scope of the problem, and allows us to make rational decisions about whether to let banks fail or whether we really do have to nationalize them.
If it then turns out that we have to nationalize a bunch of banks, we can still do it. But the Paulson plan seems like a better first step: more focused, easier to manage, and with a good chance of unstopping the credit markets quickly and putting the finance industry back on its feet.
Letting Lehman Brother go bust was obviously a disaster. Everyone agrees we can't let that happen again. And by all accounts, Paulson drove a pretty hard bargain when he nationalized AIG, one that quite possibly will end up being profitable for the taxpayers. The same might be true for the broader bailout, especially if the plan to get contingent equity shares in participating banks is included in the final legislation — as it seems to be. So I say: let him try to make the current bailout plan work. I think it's got a good chance of working, and if it doesn't, Plan B is still available.
Continues Below
Continued From Above
Comments
Submitted by John Marden (not verified) on Mon Sep. 29, 2008 1:39 PM PDT.
Tel: 978-369-6807 JOHN MARDEN Fax: 978-369-1702 1325 LOWELL ROAD
e-mail: mardenhavenwood@yahoo.com CONCORD, MA 01742 September 29, 2008
A SHOT OUT OF CONCORD? common sense or nonsense?
For the U.S Treasury to buy moribund mortgage paper from our banking system for nearly three quarters of a trillion dollars is an investment in the illusion of hope rather than an offer of help. It is likely to be as foolish an error as were the Federal Reserve Bank (the Fed)'s recent reductions of its discount rate to 2% without organized support from foreign Central Banks. Those reductions failed to ease the sub-prime/foreclosure burden, their intended purpose. Instead, they devalued the dollar and exacerbated an oncoming international inflation, which the Fed and the Treasury desperately wish to avoid. They expect and hope the decline of housing values will counter any inflation, as it did in 1980 when we had a national economy.
There is no way in this day of globalization of the world's economies that a collapsing U.S. housing market can offset international inflation; but its collapse will sorely afflict us. Of greater harm than the social tragedies of foreclosure, sad as they are, will be the destruction of home equity values, the very base of middle class savings and investment capital. Its reduction not only increases the self-perpetuation rate of foreclosure, it stifles the business dynamic needed to counter a recession and may lead to a new economic horror, inflation/depression. Such a combination has long been considered an impossible marriage, but it is probably quite possible in the age of globalization. Hope is not enough. Common sense beckons for help to the homeowner, but in Washington, how common is common sense?
Our media, taking lead from politicians and their lack of insight into the vast economic changes induced by globalization, like to blame the crisis on the irresponsibility of Wall Street's bankers to whom, ironically, the reward of the billions will largely flow; yet evidence shows such blame is but partially true at best. It has been a useful red herring to hide the politically embarrassing admission that a propensity to inflate has been allowed to permeate the world economy for eight years by expanding our government operations, reducing taxes and enormously increasing the national debt. That debt hangs over the economic world like a sword of Damocles. Its growth has stoked the furnace of international inflation, making the past rise in housing values a mere predilection of the oncoming inflationary combustion. Recent increases in the cost of energy, food and most else are now igniting that furnace. The $700 billion dollar debt increase will be fuel to a fire that consumes much of our housing industry. The fate of Fannie May, Freddie Mac, AIG and the market collapse itself reflect how the Fed reduced the wrong interest rate.
In lieu of the current program, the Fed can and should instigate a covenant that will simultaneously offset dangers now flowing to both the investment/banking industry and its mortgagor customers. The mortgagors' plight and all home owners' equity values are equally fundamental to the problem. The banking industry should receive support only in exchange for release of value to its mortgagors. By contrast to pre-globalization economic orthodoxy, the Fed must march across that psychological railroad track to the debtors' side of the financial equation. It is a move that can revive the economy quickly at no real public cost. Failure will be enormously expensive; especially should recession beget a depression.
First the Fed must induce the banks to reduce the rate of interest they charge all solely or predominantly owner occupied dwelling mortgages (the reduction could be extended to other existing mortgages as circumstance may suggest) to a maximum rate of not more than the Treasury's T-bill rate, and to zero for at least one, but perhaps more three month intervals, such interest rates to be adjusted by the Fed as it watches for result.
In exchange for the banks (i) to grant that reduction of interest; (ii) to continue to service all the mortgages; and (iii) to guarantee to the Fed (and thereby to the American taxpayer) that each mortgage shall remain in good fiscal standing (real estate taxes, insurances, and reduced mortgage obligations fully paid), the Fed would discount those mortgages for the bank's original remaining net investment cost. Call it a phased guarantee against which the mortgagee institutions, including Fannie Mae and Freddie Mac, would discount with the Fed all owner occupant dwelling mortgages, the money to be distributed by the Fed as settlement or subordination of mortgage backed security claims may provisionally demand or the careful control of national price stability may necessitate. The discount cost would be the same 0% to the prescribed maximum charged the mortgagors less a reasonable management fee, thereby replenishing the banks' capital, but costing the banks nothing.
Undoubtedly the sum of discounted money flowing to the banks would be enormous; but that enormity reflects the problem and the recognition that the value of the housing industry and the care of our greater infrastructure now approach 40% of our GDP. In orthodox economic parlance these enormities should probably be ranked as too big to allow to fail and too important to allow to decline. It is socially accountable by measure of the real estate tax, an important consideration if and when the base asset value is made to decline. Furthermore, many banks need that money to survive; and the credits will be no drain to the taxpayer unless our mortgagors elect to abandon their homes for tents. The bankers, with the benefit of the Fed's guidance and control of payment, will be able to negotiate reasonable inter-institutional settlements with the mortgage backed security holders from the powerful position of available cash instead of the current position of disillusion, fear and despair, which offers nothing. This plan, furthermore, would immediately marginalize the foreclosure problem, allowing the Fed to concentrate upon the more important problem of international inflation at the international level. The plan would be phased out at the Fed's discretion. Mortgagors would then refinance.
Except for a relatively small number of difficult situations, the banks are likely to work out most remaining problem mortgage loans rather than pursue their foreclosure, because in addition to normal foreclosure expenses and probable loss at the auction block, each such proceeding would require the banks to repay the Fed's discount window loan in full plus a significant interest penalty, reflecting that a critical reason for the discount was to forestall the foreclosure. All normal commerce subject to the existing modified mortgage would be permissible.
The Fed cannot contend simultaneously with both inflation and recession. Fighting on the international inflationary front while a domestic recessionary battle continues will be like trying to fill the top half of a glass when the bottom half is empty. The effort will fail, letting foreclosures and job losses continue to eradicate home equity, damage the economy, and allow the infrastructure to decline. Furthermore, much of our nation's savings and pension value will wither away just as it is needed to restore the domestic business dynamic, let alone survive for its original purpose.
These thoughts were developed from discussions begun in August 2007; some of which comprise the e-mail attachment. The attachment is indexed below. If it is not tied to your e-mail and should be of interest, request it from me at mardenhavenwood@yahoo.com.
Pages 3 to 5: A short discussion re the sub-prime/foreclosure problem.
Pages 6-14: A longer discussion re the sub-prime/foreclosure problem.
Page 15: Copy of last accompanying letter to Congressman Barney Frank.
Page 16: Copy of December 11 letter from Congressman Barney Frank.
Pages 17 -19: Copies of a March 3 and May 17 letter to Congressman Frank.
Page 20: Copy of reply from Congressman Frank.
Page 21: Copy of my reply to his letter.
Page 22-23: Copy of letter to Professor Blinder.
Pages 24 -25: Copy of two recent accompanying letters to Congressman Frank.
Pages 26-38:
IN INTEREST OF BREVITY I TOOK MUCH OF THE ABOVE FROM EARLIER EFFORTS SET FORTH HERE. SOME OF IT MAY BE OF INTEREST; MUCH IS REPETITION.
Pages 39-51: A SHOT OUT OF CONCORD ? A Marshall Plan for America September 27, 2007; re-edited 04/23/08
COPY OF AN EARLIER EFFORT SHOWING DEVELOPMENT OF ARGUMENT
In the short discussion I point out how our orthodox economic training must readjust to accommodate globalization. I quote:
Something better is at hand if the Fed can allow itself to attend to the crisis from the mortgagor or debtors' side of the economic equation. This very idea challenges the economic orthodoxy of the last 64 years of the twentieth century. To jump away from its understandings is a difficult leap for the patrician economists, bankers, investors, CEOs, lobbyists and politicians who control our plutocracy. Under the current pressure of events they search for recovery where they can render an immediate benefit to their well represented investment/banking side of the equation, otherwise called "the market;" but they adopt the complacency of a sound-bite such as "an overdue market place correction will soon reverse the crisis" to the mortgagor or debtors' side and then let the sacrosanct economic doctrine of a laissez-faire market-place correction fall like the axe of the guillotine on the neck of the home owner debtor. Globalization requires a change from the economic orthodoxy of the past century and its national economies.
Submitted by John Marden (not verified) on Mon Sep. 29, 2008 1:47 PM PDT.
Tel: 978-369-6807 JOHN MARDEN Fax: 978-369-1702 1325 LOWELL ROAD
e-mail: mardenhavenwood@yahoo.com CONCORD, MA 01742 September 29, 2008
A SHOT OUT OF CONCORD? common sense or nonsense?
For the U.S Treasury to buy moribund mortgage paper from our banking system for nearly three quarters of a trillion dollars is an investment in the illusion of hope rather than an offer of help. It is likely to be as foolish an error as were the Federal Reserve Bank (the Fed)'s recent reductions of its discount rate to 2% without organized support from foreign Central Banks. Those reductions failed to ease the sub-prime/foreclosure burden, their intended purpose. Instead, they devalued the dollar and exacerbated an oncoming international inflation, which the Fed and the Treasury desperately wish to avoid. They expect and hope the decline of housing values will counter any inflation, as it did in 1980 when we had a national economy.
There is no way in this day of globalization of the world's economies that a collapsing U.S. housing market can offset international inflation; but its collapse will sorely afflict us. Of greater harm than the social tragedies of foreclosure, sad as they are, will be the destruction of home equity values, the very base of middle class savings and investment capital. Its reduction not only increases the self-perpetuation rate of foreclosure, it stifles the business dynamic needed to counter a recession and may lead to a new economic horror, inflation/depression. Such a combination has long been considered an impossible marriage, but it is probably quite possible in the age of globalization. Hope is not enough. Common sense beckons for help to the homeowner, but in Washington, how common is common sense?
Our media, taking lead from politicians and their lack of insight into the vast economic changes induced by globalization, like to blame the crisis on the irresponsibility of Wall Street's bankers to whom, ironically, the reward of the billions will largely flow; yet evidence shows such blame is but partially true at best. It has been a useful red herring to hide the politically embarrassing admission that a propensity to inflate has been allowed to permeate the world economy for eight years by expanding our government operations, reducing taxes and enormously increasing the national debt. That debt hangs over the economic world like a sword of Damocles. Its growth has stoked the furnace of international inflation, making the past rise in housing values a mere predilection of the oncoming inflationary combustion. Recent increases in the cost of energy, food and most else are now igniting that furnace. The $700 billion dollar debt increase will be fuel to a fire that consumes much of our housing industry. The fate of Fannie May, Freddie Mac, AIG and the market collapse itself reflect how the Fed reduced the wrong interest rate.
In lieu of the current program, the Fed can and should instigate a covenant that will simultaneously offset dangers now flowing to both the investment/banking industry and its mortgagor customers. The mortgagors' plight and all home owners' equity values are equally fundamental to the problem. The banking industry should receive support only in exchange for release of value to its mortgagors. By contrast to pre-globalization economic orthodoxy, the Fed must march across that psychological railroad track to the debtors' side of the financial equation. It is a move that can revive the economy quickly at no real public cost. Failure will be enormously expensive; especially should recession beget a depression.
First the Fed must induce the banks to reduce the rate of interest they charge all solely or predominantly owner occupied dwelling mortgages (the reduction could be extended to other existing mortgages as circumstance may suggest) to a maximum rate of not more than the Treasury's T-bill rate, and to zero for at least one, but perhaps more three month intervals, such interest rates to be adjusted by the Fed as it watches for result.
In exchange for the banks (i) to grant that reduction of interest; (ii) to continue to service all the mortgages; and (iii) to guarantee to the Fed (and thereby to the American taxpayer) that each mortgage shall remain in good fiscal standing (real estate taxes, insurances, and reduced mortgage obligations fully paid), the Fed would discount those mortgages for the bank's original remaining net investment cost. Call it a phased guarantee against which the mortgagee institutions, including Fannie Mae and Freddie Mac, would discount with the Fed all owner occupant dwelling mortgages, the money to be distributed by the Fed as settlement or subordination of mortgage backed security claims may provisionally demand or the careful control of national price stability may necessitate. The discount cost would be the same 0% to the prescribed maximum charged the mortgagors less a reasonable management fee, thereby replenishing the banks' capital, but costing the banks nothing.
Undoubtedly the sum of discounted money flowing to the banks would be enormous; but that enormity reflects the problem and the recognition that the value of the housing industry and the care of our greater infrastructure now approach 40% of our GDP. In orthodox economic parlance these enormities should probably be ranked as too big to allow to fail and too important to allow to decline. It is socially accountable by measure of the real estate tax, an important consideration if and when the base asset value is made to decline. Furthermore, many banks need that money to survive; and the credits will be no drain to the taxpayer unless our mortgagors elect to abandon their homes for tents. The bankers, with the benefit of the Fed's guidance and control of payment, will be able to negotiate reasonable inter-institutional settlements with the mortgage backed security holders from the powerful position of available cash instead of the current position of disillusion, fear and despair, which offers nothing. This plan, furthermore, would immediately marginalize the foreclosure problem, allowing the Fed to concentrate upon the more important problem of international inflation at the international level. The plan would be phased out at the Fed's discretion. Mortgagors would then refinance.
Except for a relatively small number of difficult situations, the banks are likely to work out most remaining problem mortgage loans rather than pursue their foreclosure, because in addition to normal foreclosure expenses and probable loss at the auction block, each such proceeding would require the banks to repay the Fed's discount window loan in full plus a significant interest penalty, reflecting that a critical reason for the discount was to forestall the foreclosure. All normal commerce subject to the existing modified mortgage would be permissible.
The Fed cannot contend simultaneously with both inflation and recession. Fighting on the international inflationary front while a domestic recessionary battle continues will be like trying to fill the top half of a glass when the bottom half is empty. The effort will fail, letting foreclosures and job losses continue to eradicate home equity, damage the economy, and allow the infrastructure to decline. Furthermore, much of our nation's savings and pension value will wither away just as it is needed to restore the domestic business dynamic, let alone survive for its original purpose.
These thoughts were developed from discussions begun in August 2007; some of which comprise the e-mail attachment. The attachment is indexed below. If it is not tied to your e-mail and should be of interest, request it from me at mardenhavenwood@yahoo.com.
Pages 3 to 5: A short discussion re the sub-prime/foreclosure problem.
Pages 6-14: A longer discussion re the sub-prime/foreclosure problem.
Page 15: Copy of last accompanying letter to Congressman Barney Frank.
Page 16: Copy of December 11 letter from Congressman Barney Frank.
Pages 17 -19: Copies of a March 3 and May 17 letter to Congressman Frank.
Page 20: Copy of reply from Congressman Frank.
Page 21: Copy of my reply to his letter.
Page 22-23: Copy of letter to Professor Blinder.
Pages 24 -25: Copy of two recent accompanying letters to Congressman Frank.
Pages 26-38:
IN INTEREST OF BREVITY I TOOK MUCH OF THE ABOVE FROM EARLIER EFFORTS SET FORTH HERE. SOME OF IT MAY BE OF INTEREST; MUCH IS REPETITION.
Pages 39-51: A SHOT OUT OF CONCORD ? A Marshall Plan for America September 27, 2007; re-edited 04/23/08
COPY OF AN EARLIER EFFORT SHOWING DEVELOPMENT OF ARGUMENT
In the short discussion I point out how our orthodox economic training must readjust to accommodate globalization. I quote:
Something better is at hand if the Fed can allow itself to attend to the crisis from the mortgagor or debtors' side of the economic equation. This very idea challenges the economic orthodoxy of the last 64 years of the twentieth century. To jump away from its understandings is a difficult leap for the patrician economists, bankers, investors, CEOs, lobbyists and politicians who control our plutocracy. Under the current pressure of events they search for recovery where they can render an immediate benefit to their well represented investment/banking side of the equation, otherwise called "the market;" but they adopt the complacency of a sound-bite such as "an overdue market place correction will soon reverse the crisis" to the mortgagor or debtors' side and then let the sacrosanct economic doctrine of a laissez-faire market-place correction fall like the axe of the guillotine on the neck of the home owner debtor. Globalization requires a change from the economic orthodoxy of the past century and its national economies.
Submitted by John Marden (not verified) on Mon Sep. 29, 2008 1:39 PM PDT.
Tel: 978-369-6807 JOHN MARDEN Fax: 978-369-1702 1325 LOWELL ROAD
e-mail: mardenhavenwood@yahoo.com CONCORD, MA 01742 September 29, 2008
A SHOT OUT OF CONCORD? common sense or nonsense?
For the U.S Treasury to buy moribund mortgage paper from our banking system for nearly three quarters of a trillion dollars is an investment in the illusion of hope rather than an offer of help. It is likely to be as foolish an error as were the Federal Reserve Bank (the Fed)'s recent reductions of its discount rate to 2% without organized support from foreign Central Banks. Those reductions failed to ease the sub-prime/foreclosure burden, their intended purpose. Instead, they devalued the dollar and exacerbated an oncoming international inflation, which the Fed and the Treasury desperately wish to avoid. They expect and hope the decline of housing values will counter any inflation, as it did in 1980 when we had a national economy.
There is no way in this day of globalization of the world's economies that a collapsing U.S. housing market can offset international inflation; but its collapse will sorely afflict us. Of greater harm than the social tragedies of foreclosure, sad as they are, will be the destruction of home equity values, the very base of middle class savings and investment capital. Its reduction not only increases the self-perpetuation rate of foreclosure, it stifles the business dynamic needed to counter a recession and may lead to a new economic horror, inflation/depression. Such a combination has long been considered an impossible marriage, but it is probably quite possible in the age of globalization. Hope is not enough. Common sense beckons for help to the homeowner, but in Washington, how common is common sense?
Our media, taking lead from politicians and their lack of insight into the vast economic changes induced by globalization, like to blame the crisis on the irresponsibility of Wall Street's bankers to whom, ironically, the reward of the billions will largely flow; yet evidence shows such blame is but partially true at best. It has been a useful red herring to hide the politically embarrassing admission that a propensity to inflate has been allowed to permeate the world economy for eight years by expanding our government operations, reducing taxes and enormously increasing the national debt. That debt hangs over the economic world like a sword of Damocles. Its growth has stoked the furnace of international inflation, making the past rise in housing values a mere predilection of the oncoming inflationary combustion. Recent increases in the cost of energy, food and most else are now igniting that furnace. The $700 billion dollar debt increase will be fuel to a fire that consumes much of our housing industry. The fate of Fannie May, Freddie Mac, AIG and the market collapse itself reflect how the Fed reduced the wrong interest rate.
In lieu of the current program, the Fed can and should instigate a covenant that will simultaneously offset dangers now flowing to both the investment/banking industry and its mortgagor customers. The mortgagors' plight and all home owners' equity values are equally fundamental to the problem. The banking industry should receive support only in exchange for release of value to its mortgagors. By contrast to pre-globalization economic orthodoxy, the Fed must march across that psychological railroad track to the debtors' side of the financial equation. It is a move that can revive the economy quickly at no real public cost. Failure will be enormously expensive; especially should recession beget a depression.
First the Fed must induce the banks to reduce the rate of interest they charge all solely or predominantly owner occupied dwelling mortgages (the reduction could be extended to other existing mortgages as circumstance may suggest) to a maximum rate of not more than the Treasury's T-bill rate, and to zero for at least one, but perhaps more three month intervals, such interest rates to be adjusted by the Fed as it watches for result.
In exchange for the banks (i) to grant that reduction of interest; (ii) to continue to service all the mortgages; and (iii) to guarantee to the Fed (and thereby to the American taxpayer) that each mortgage shall remain in good fiscal standing (real estate taxes, insurances, and reduced mortgage obligations fully paid), the Fed would discount those mortgages for the bank's original remaining net investment cost. Call it a phased guarantee against which the mortgagee institutions, including Fannie Mae and Freddie Mac, would discount with the Fed all owner occupant dwelling mortgages, the money to be distributed by the Fed as settlement or subordination of mortgage backed security claims may provisionally demand or the careful control of national price stability may necessitate. The discount cost would be the same 0% to the prescribed maximum charged the mortgagors less a reasonable management fee, thereby replenishing the banks' capital, but costing the banks nothing.
Undoubtedly the sum of discounted money flowing to the banks would be enormous; but that enormity reflects the problem and the recognition that the value of the housing industry and the care of our greater infrastructure now approach 40% of our GDP. In orthodox economic parlance these enormities should probably be ranked as too big to allow to fail and too important to allow to decline. It is socially accountable by measure of the real estate tax, an important consideration if and when the base asset value is made to decline. Furthermore, many banks need that money to survive; and the credits will be no drain to the taxpayer unless our mortgagors elect to abandon their homes for tents. The bankers, with the benefit of the Fed's guidance and control of payment, will be able to negotiate reasonable inter-institutional settlements with the mortgage backed security holders from the powerful position of available cash instead of the current position of disillusion, fear and despair, which offers nothing. This plan, furthermore, would immediately marginalize the foreclosure problem, allowing the Fed to concentrate upon the more important problem of international inflation at the international level. The plan would be phased out at the Fed's discretion. Mortgagors would then refinance.
Except for a relatively small number of difficult situations, the banks are likely to work out most remaining problem mortgage loans rather than pursue their foreclosure, because in addition to normal foreclosure expenses and probable loss at the auction block, each such proceeding would require the banks to repay the Fed's discount window loan in full plus a significant interest penalty, reflecting that a critical reason for the discount was to forestall the foreclosure. All normal commerce subject to the existing modified mortgage would be permissible.
The Fed cannot contend simultaneously with both inflation and recession. Fighting on the international inflationary front while a domestic recessionary battle continues will be like trying to fill the top half of a glass when the bottom half is empty. The effort will fail, letting foreclosures and job losses continue to eradicate home equity, damage the economy, and allow the infrastructure to decline. Furthermore, much of our nation's savings and pension value will wither away just as it is needed to restore the domestic business dynamic, let alone survive for its original purpose.
These thoughts were developed from discussions begun in August 2007; some of which comprise the e-mail attachment. The attachment is indexed below. If it is not tied to your e-mail and should be of interest, request it from me at mardenhavenwood@yahoo.com.
Pages 3 to 5: A short discussion re the sub-prime/foreclosure problem.
Pages 6-14: A longer discussion re the sub-prime/foreclosure problem.
Page 15: Copy of last accompanying letter to Congressman Barney Frank.
Page 16: Copy of December 11 letter from Congressman Barney Frank.
Pages 17 -19: Copies of a March 3 and May 17 letter to Congressman Frank.
Page 20: Copy of reply from Congressman Frank.
Page 21: Copy of my reply to his letter.
Page 22-23: Copy of letter to Professor Blinder.
Pages 24 -25: Copy of two recent accompanying letters to Congressman Frank.
Pages 26-38:
IN INTEREST OF BREVITY I TOOK MUCH OF THE ABOVE FROM EARLIER EFFORTS SET FORTH HERE. SOME OF IT MAY BE OF INTEREST; MUCH IS REPETITION.
Pages 39-51: A SHOT OUT OF CONCORD ? A Marshall Plan for America September 27, 2007; re-edited 04/23/08
COPY OF AN EARLIER EFFORT SHOWING DEVELOPMENT OF ARGUMENT
In the short discussion I point out how our orthodox economic training must readjust to accommodate globalization. I quote:
Something better is at hand if the Fed can allow itself to attend to the crisis from the mortgagor or debtors' side of the economic equation. This very idea challenges the economic orthodoxy of the last 64 years of the twentieth century. To jump away from its understandings is a difficult leap for the patrician economists, bankers, investors, CEOs, lobbyists and politicians who control our plutocracy. Under the current pressure of events they search for recovery where they can render an immediate benefit to their well represented investment/banking side of the equation, otherwise called "the market;" but they adopt the complacency of a sound-bite such as "an overdue market place correction will soon reverse the crisis" to the mortgagor or debtors' side and then let the sacrosanct economic doctrine of a laissez-faire market-place correction fall like the axe of the guillotine on the neck of the home owner debtor. Globalization requires a change from the economic orthodoxy of the past century and its national economies.
Submitted by John Marden (not verified) on Mon Sep. 29, 2008 1:47 PM PDT.
Tel: 978-369-6807 JOHN MARDEN Fax: 978-369-1702 1325 LOWELL ROAD
e-mail: mardenhavenwood@yahoo.com CONCORD, MA 01742 September 29, 2008
A SHOT OUT OF CONCORD? common sense or nonsense?
For the U.S Treasury to buy moribund mortgage paper from our banking system for nearly three quarters of a trillion dollars is an investment in the illusion of hope rather than an offer of help. It is likely to be as foolish an error as were the Federal Reserve Bank (the Fed)'s recent reductions of its discount rate to 2% without organized support from foreign Central Banks. Those reductions failed to ease the sub-prime/foreclosure burden, their intended purpose. Instead, they devalued the dollar and exacerbated an oncoming international inflation, which the Fed and the Treasury desperately wish to avoid. They expect and hope the decline of housing values will counter any inflation, as it did in 1980 when we had a national economy.
There is no way in this day of globalization of the world's economies that a collapsing U.S. housing market can offset international inflation; but its collapse will sorely afflict us. Of greater harm than the social tragedies of foreclosure, sad as they are, will be the destruction of home equity values, the very base of middle class savings and investment capital. Its reduction not only increases the self-perpetuation rate of foreclosure, it stifles the business dynamic needed to counter a recession and may lead to a new economic horror, inflation/depression. Such a combination has long been considered an impossible marriage, but it is probably quite possible in the age of globalization. Hope is not enough. Common sense beckons for help to the homeowner, but in Washington, how common is common sense?
Our media, taking lead from politicians and their lack of insight into the vast economic changes induced by globalization, like to blame the crisis on the irresponsibility of Wall Street's bankers to whom, ironically, the reward of the billions will largely flow; yet evidence shows such blame is but partially true at best. It has been a useful red herring to hide the politically embarrassing admission that a propensity to inflate has been allowed to permeate the world economy for eight years by expanding our government operations, reducing taxes and enormously increasing the national debt. That debt hangs over the economic world like a sword of Damocles. Its growth has stoked the furnace of international inflation, making the past rise in housing values a mere predilection of the oncoming inflationary combustion. Recent increases in the cost of energy, food and most else are now igniting that furnace. The $700 billion dollar debt increase will be fuel to a fire that consumes much of our housing industry. The fate of Fannie May, Freddie Mac, AIG and the market collapse itself reflect how the Fed reduced the wrong interest rate.
In lieu of the current program, the Fed can and should instigate a covenant that will simultaneously offset dangers now flowing to both the investment/banking industry and its mortgagor customers. The mortgagors' plight and all home owners' equity values are equally fundamental to the problem. The banking industry should receive support only in exchange for release of value to its mortgagors. By contrast to pre-globalization economic orthodoxy, the Fed must march across that psychological railroad track to the debtors' side of the financial equation. It is a move that can revive the economy quickly at no real public cost. Failure will be enormously expensive; especially should recession beget a depression.
First the Fed must induce the banks to reduce the rate of interest they charge all solely or predominantly owner occupied dwelling mortgages (the reduction could be extended to other existing mortgages as circumstance may suggest) to a maximum rate of not more than the Treasury's T-bill rate, and to zero for at least one, but perhaps more three month intervals, such interest rates to be adjusted by the Fed as it watches for result.
In exchange for the banks (i) to grant that reduction of interest; (ii) to continue to service all the mortgages; and (iii) to guarantee to the Fed (and thereby to the American taxpayer) that each mortgage shall remain in good fiscal standing (real estate taxes, insurances, and reduced mortgage obligations fully paid), the Fed would discount those mortgages for the bank's original remaining net investment cost. Call it a phased guarantee against which the mortgagee institutions, including Fannie Mae and Freddie Mac, would discount with the Fed all owner occupant dwelling mortgages, the money to be distributed by the Fed as settlement or subordination of mortgage backed security claims may provisionally demand or the careful control of national price stability may necessitate. The discount cost would be the same 0% to the prescribed maximum charged the mortgagors less a reasonable management fee, thereby replenishing the banks' capital, but costing the banks nothing.
Undoubtedly the sum of discounted money flowing to the banks would be enormous; but that enormity reflects the problem and the recognition that the value of the housing industry and the care of our greater infrastructure now approach 40% of our GDP. In orthodox economic parlance these enormities should probably be ranked as too big to allow to fail and too important to allow to decline. It is socially accountable by measure of the real estate tax, an important consideration if and when the base asset value is made to decline. Furthermore, many banks need that money to survive; and the credits will be no drain to the taxpayer unless our mortgagors elect to abandon their homes for tents. The bankers, with the benefit of the Fed's guidance and control of payment, will be able to negotiate reasonable inter-institutional settlements with the mortgage backed security holders from the powerful position of available cash instead of the current position of disillusion, fear and despair, which offers nothing. This plan, furthermore, would immediately marginalize the foreclosure problem, allowing the Fed to concentrate upon the more important problem of international inflation at the international level. The plan would be phased out at the Fed's discretion. Mortgagors would then refinance.
Except for a relatively small number of difficult situations, the banks are likely to work out most remaining problem mortgage loans rather than pursue their foreclosure, because in addition to normal foreclosure expenses and probable loss at the auction block, each such proceeding would require the banks to repay the Fed's discount window loan in full plus a significant interest penalty, reflecting that a critical reason for the discount was to forestall the foreclosure. All normal commerce subject to the existing modified mortgage would be permissible.
The Fed cannot contend simultaneously with both inflation and recession. Fighting on the international inflationary front while a domestic recessionary battle continues will be like trying to fill the top half of a glass when the bottom half is empty. The effort will fail, letting foreclosures and job losses continue to eradicate home equity, damage the economy, and allow the infrastructure to decline. Furthermore, much of our nation's savings and pension value will wither away just as it is needed to restore the domestic business dynamic, let alone survive for its original purpose.
These thoughts were developed from discussions begun in August 2007; some of which comprise the e-mail attachment. The attachment is indexed below. If it is not tied to your e-mail and should be of interest, request it from me at mardenhavenwood@yahoo.com.
Pages 3 to 5: A short discussion re the sub-prime/foreclosure problem.
Pages 6-14: A longer discussion re the sub-prime/foreclosure problem.
Page 15: Copy of last accompanying letter to Congressman Barney Frank.
Page 16: Copy of December 11 letter from Congressman Barney Frank.
Pages 17 -19: Copies of a March 3 and May 17 letter to Congressman Frank.
Page 20: Copy of reply from Congressman Frank.
Page 21: Copy of my reply to his letter.
Page 22-23: Copy of letter to Professor Blinder.
Pages 24 -25: Copy of two recent accompanying letters to Congressman Frank.
Pages 26-38:
IN INTEREST OF BREVITY I TOOK MUCH OF THE ABOVE FROM EARLIER EFFORTS SET FORTH HERE. SOME OF IT MAY BE OF INTEREST; MUCH IS REPETITION.
Pages 39-51: A SHOT OUT OF CONCORD ? A Marshall Plan for America September 27, 2007; re-edited 04/23/08
COPY OF AN EARLIER EFFORT SHOWING DEVELOPMENT OF ARGUMENT
In the short discussion I point out how our orthodox economic training must readjust to accommodate globalization. I quote:
Something better is at hand if the Fed can allow itself to attend to the crisis from the mortgagor or debtors' side of the economic equation. This very idea challenges the economic orthodoxy of the last 64 years of the twentieth century. To jump away from its understandings is a difficult leap for the patrician economists, bankers, investors, CEOs, lobbyists and politicians who control our plutocracy. Under the current pressure of events they search for recovery where they can render an immediate benefit to their well represented investment/banking side of the equation, otherwise called "the market;" but they adopt the complacency of a sound-bite such as "an overdue market place correction will soon reverse the crisis" to the mortgagor or debtors' side and then let the sacrosanct economic doctrine of a laissez-faire market-place correction fall like the axe of the guillotine on the neck of the home owner debtor. Globalization requires a change from the economic orthodoxy of the past century and its national economies.
If you want to understand, go to Krugmans blog at the nyt and watch the video. Read his posts.
The slicing of 700bn into 250 + 100 + 350 is ajoke. Paulsen can spend the first 250bn in 4 weeks and the say he needss more and he gets it. Just on his sayso. Then hecoms back for the rest. Congrass stalls, Bush vetoes the veto and here we go. And all the rest of the oversight stuff is on the sam level. I really don't know what Pelosy and Reid get paid for.
If I understand you correctly, your support is for the Paulson Plan that PK thinks is a disaster. The plan he favors is your alternative which you don't support because it doesn't have enough momentum behind it.
With all respect man, if PK says you're full of it, you need to address that point.
Some folks were considering a plan that says: a) banks need $700b, b) we don't want to own banks, c) we do have $1T of infrastructure to rebuild, so we don't do squat to banks directly, but we announce a $1T infrastructure (with oversight and regulation) program and let cities, counties, states, apply. For every accepted project, bonds are floated, proceeds presumably in a variety of banks.
I ain't no banker but that seems to give banks the capital they need to shitcan their crap, keep us from owning banks, put our people to work, fix our infrastucture. Seems like a pretty good win win.
I think with my limited understanding it's a reasonable start. I thought it so up until I heard that McCain wanted a plan something like this. So I am sure there is something wrong with it.
Anyway d00d, no offense but MJ-KD vs. NYT-PK? Your outfit ain't cutting it.
The Sunday plan (as opposed to the Thursday of last week plan) just gives a fig leaf to the Republicans... it gets rid of the Housing Trust Fund (ha! you though there were going to be profits from this thing?!) and gives a cursory nod to the insurance idea (leaving it to the Secretary's discretion). But House Reps got what they really wanted... the chance to let McCain swoop in and pretend he's a savior.
But I'm not that crazy about one Democratic addition to the plan. The new version allows the government to renegotiate the mortgages it purchases. Untangling all the paper spaghetti and renegotiating each mortgage on its own terms sounds to me like a bureaucratic nightmare.
And now for the dessert of cynicism: no politician who votes for this will gain popularity thereby, but the House GOP will suffer much, much more: first, for voting for some insane deficit spending, two, for giving in to the much-demonized Nancy Pelosi of San Francisco. Democrats are already 'big spenders' (by reputation, less so in reality), so their votes will merely been seen as playing to type.
This vote will make a difference in competitive purple districts all across the country; I expect we definitely win Kentucky if McConnell votes for this. And tack on another five or six house seats for the Dems when the Republicans 'sell-out'.
Those who want to postpone this deal til Obama's (knock on wood) presidency should think more clearly. What an awful way to start out if the first thing he has to do is arrange a Wall Street bailout! Isn't it better to pass one under Bush, so that he and the GOP can take the lion's share of the ill-will it generates?
Like Kevin, I too support Paulson-Dodd-Frank, but much prefer nationalization a la Swede, I'm not sure Kevin is correct that Plan B (bank nationalization) will be availiable if the Paulson Plan doesn't work.
I'm certainly no expert, but I can see some huge problems if Paulson fails.
Will the U.S. govt have the means to recapitalize banks if the first plan fails? How much money can this country borrow? It might have to pay interest rates so high that we risk falling into a depression.
The Fed could turn on the printing presses to fund recapitalization, but by then the dollar might be funny money. You could have hyperinflation that would erode the value of bank capital caused by the very actions meant to boost it.
I hate the Paulson Plan, but I really hope it works. This country is truly on the edge of a huge disaster -- a total systematic meltdown.
And unlike Sweden, the U.S. is the behemoth of global economy. If we go down, no one will be in a position to help us. We will be on our own.
Isn't it better to pass one under Bush, so that he and the GOP can take the lion's share of the ill-will it generates?
Yes, agreed! We should pass one now when we barely control the Senate and have very little control over Congress and none over the house. We should pass one now with the most hated (and rightfully so) Congressional Leadership in recent decades.
We should pass one now when we are almost guaranteed to get screwed, because passing one when we are clearly in control would be a terrible, terrible thing.
Passing one when we have lots of power politically and with the press would be a dumb idea. Taking weeks to put together ideas and teams would be nonsensical.
And worse, putting any plan out there without plausible deniability is just suicide.
Somewhere in here is an argument for being a Democrat, but I fail to see it at the moment.
Submitted by The Lounsbury (not verified) on Sun Sep. 28, 2008 11:42 AM PDT.
Well one reason I read you mate is you are honest about what you know.
Re one item, Lehman Bros: I think this was not a "disaster" but the necessary test case. Before US Gov did that, you all (on the American Left) were howling on near universally about how the current unbelievers should try their own market discipline. That needed to happen to render things more credible.
Now of course the anti free market types take the extreme (rather a la Marx in the 19th c. for equally erroneous conclusions) situation as an argument against the entire framework. Rather, indeed almost 100% similar to the drooling ideologues you have pretending to be a proper opposition in the House - Right Bolsheviks I have called them for years now, and they are.
A corrective should happen, and regulation should roll back in - but certainly as the answers of the crisis of 1930s were not eternal, neither shall these (nor the deregulation). Dynamic world, sadly for the ideologues left and right, that tends to render their unvarying truths wrong now and again.
> Letting Lehman Brother go bust
> was obviously a disaster.
A mistake? Really? My understanding is that Lehman Bros was the very one and only Wall Street big-money firm that had a majority of donors to the Democratic Party among its executives - all the rest, without exception, donate to Republicans by a wide margin. So Lehman was torpoeded and Bush, Cheney, Addington, and Norquist get $700 billion to give to their friends and hamstring the Obama Administration with debt. A mistake? Hmmm.
Cranky
I can't believe I'm watching each liberal blogger strike out swinging in the bottom of the ninth after giving up a four run lead with the visitor and soon-to-be-division-leader up by one. It's like being a Mets fan.
If you spend $700 billion on overpriced trash to pump up the balance sheets of banks that should have been wiped THAT is your economic policy. Once you've done that, there's nothing more of substance you can do. So to speak of further actions once more information comes to light is a complete red herring. Policy makers thought the best policy was to socialize the losses due to bad risks. That's the policy, and that will lead to further disaster.
Maybe if this bailout was accompanied, in the very same bill, by a very large increase in the tax rate for capital gains, then I might believe that in some sense this bailout serves the public good. As it stands, it was bought and paid for by prudent investors who realized that the price for all of Congress was much lower than the opportunity cost of not taking ridiculous risks.
Every risk-averse bank and cautious value investor in this country is made a fool by this legislation.
Kevin,
Please start thinking outside the box the media asks you to think in.
The bailout is a crime against humanity. The American dollar is the basis for financial transactions all over the world. The deflation of the dollar that this bailout will initiate will be devestating for the whole world and increase the hate for the greedy, morally vacuous and hypocritical rule of law country we have become.
Who predicted this disaster two years ago? New York University economics professor Nouriel Roubini.
Has Roubini, who actually described what was going to happen back in 2006, been asked to comment on the 700 billion bailout by the Congress, the Treasury or any of the presidential campaigns? No.
And what does Roubini have to say about the bailout? It's fucking rubbish:
"The Treasury plan (even in its current version agreed with Congress) is very poorly conceived and does not contain many of the key elements of a sound and efficient and fair rescue plan. Like in my 10 step HOME plan many other economists and commentators (Charles Calomiris, Raghu Rajan, Kotlikoff and Mehrling, Luigi Zingales, Martin Wolf, Barry Ritholtz, Chris Whalen and twenty others whose views have been featured this week in the RGE Monitor group blogs) have presented ideas that would have minimized the cost to the US taxpayer of a resolution of this financial crisis. It is a disgrace that no professional economist was consulted by Congress or invited to present his/her views at the Congressional hearings on the Treasury rescue plan. Specifically, the Treasury plan does not formally provide senior preferred shares for the government in exchange for the government purchase of the toxic/illiquid assets of the financial institutions; so this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the firms; with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."
It's sickening that Pelosi and Barney Frank, and even Obama, are getting sucked into this mess. What's wrong with Democrats? Both politically, as well in terms of policy the proposed solution seems really fucked up.
____________________________________________
Kevin, I guess I'm a little dense, but what exactly was the tragedy of Lehman going bust? I've read on Drudge Dick Fuld was paid $17,000 an hour last year, now he's unemployed. The assets and people were snapped up within hours by other institutions and life goes on. Why was letting the market work a disaster?
Kevin, you owe it to yourself and your readers to listen to David Cay Johnston this afternoon on On The Media "Rescue Mission". Right now you can ( http://audio.wnyc.org/otm/otm092608pod.mp3 ) download the whole show and it's the second or third segment, and starts at 7:05. And it's terrific.
Kevin Drum: yes and yes
Yes, surrender, and yes, bend over. Great plan! Substitute "Democrat" for "French" and those surrender monkey jokes start to make sense.
[recapitalization via stock purchases is] not a serious alternative right now because there's simply no political support for it
In other words the Democratic "leadership" is weak willed, ineffectual, and purely reactive to Republican proposals.
Where the hell were the Democrats over the last six months or so? They should have had an alternative plan ready to go. Preferably one that had been studied by some actual economists with some actual knowledge of history (Sweden and Japan), and that employed a capitalist rather than a welfare-for-the-wealthy strategy. Best of all, it might have been written, and promoted as, a plan that minimized how badly the taxpayers will get screwed.
Why twiddle our thumbs waiting for banks to fail?
See the above comments about our Democratic "leadership".
Why prop up entire institutions when their problems are narrowly focused on a particular class of assets?
Recapitalization wouldn't prop them up - that's what buying the toxic waste would do. Recapitalization would buy them at fire sale prices. Ask Warren Buffet - he's made fortunes buying up and recapitalizing failed financial businesses. How do you think Berkshire Hathaway came to own GEICO? Why did he make a joint bid for LTCM before their fairy godmother at the NY Fed swooped in? Why did he just buy $5B in preferred shares of Goldman Sachs?
When you've got somebody's ass in a sling, over a barrel, and their cajones in your hand, it's a good time to drive a hard bargain. Not out of vengeance or spite, but because it's my #$%^@&! money they're playing with.
Instead the Republicans and their Democratic enablers want to splurge on welfare-for-the-wealthy. This from the folks who won so many elections complaining about welfare mothers. Apparently the problem with welfare moms is that they don't think big enough. Forget about nickels and dimes for food and rent in your tenement - ask for $700B so you don't have to sell your fifth mansion.
Who decides which banks are worth nationalizing and which ones aren't?
That object of Republican veneration, the market (and in this case it works). Banks will do whatever they can to get a private sector deal instead of becoming a ward of the state. Good for them if they succeed, otherwise say hi to Uncle Sam.
If it then turns out that we have to nationalize a bunch of banks, we can still do it.
With what money? Even Uncle Sam's credit card is finite, and an extra $700B in toxic waste ain't gonna help the balance.
Submitted by Mike (not verified) on Sun Sep. 28, 2008 2:56 PM PDT.
This plan actually greatly increases systemic risk and will not at all help banks resume lending.
Anyway, giving more credit -- when credit caused the problem -- is asinine.
In a way, I am glad this plan will pass. It signals and instantiates the end of the American empire -- of course, that means my standard of living, too, will decrease along with all other Americans.
I can't believe, though, that someone as smart as Drum supports a plan this idiotic.
There's an element of expectations in economics that shouldn't be understated -- at bottom, economic policy making in situations like these is like running a con game. After several failed plans in a row, the expectation that all plans fail might just set in, which is sort of like the rubes catching on to the con. Let's hope this plan works. Let's hope it a lot.
"Why prop up entire institutions when their problems are narrowly focused on a particular class of assets?"
Because they are not. I don't think you quite grasp the reality that the toxic mortgages are just a symptom of the fact that the system is rotten to the core. Pretending that these pieces of paper are "worth something", and there's a market out there for this shit that can be fixed by simply providing more liquidity ignores the fact that the entire credit system is bankrupt, corrupt and blind to needs of all but the big money players. You are proposing band-aids for the flesh wounds, and ignoring the cancer that's been chewing up the insides.
Submitted by William W. Wexler (not verified) on Mon Sep. 29, 2008 2:58 AM PDT.
It's funny how the tacit assumption of this article is that the bailout plan will pass Congress.
This plan is flawed, it is theft, and any politician up for election who votes for it is going to face the wrath of their constituents in just a few weeks.
The GOP cannot support it because it looks like "socialized gubbermint" to them. The Dems cannot support it because it looks like "Wall St. before Main St." to them.
So WHO can support it? A few talking head economists, Barny Frank, and... ??
Call your Congress people twice today. It's NOT TO LATE TO KILL THIS MONSTER.
-Wexler
It's nice to see the left side of the evilarchy media machine continuing to preach the inevitability of a fascist state en toto. Mother Jones, shame on your supposed unbiased media mouthpiecing the herald of an even darker time in our history.
The folks out here reading this are shaking our heads in disgust. Whether the bill passes or not, we're in dark times. Revolution is not out of the question, but don't look for it on the evening news.
In the meantime, go out and have a conversation with your neighbor, without the technology distractions, you'll both be the better for the discussion.
Surowiecki, in this week's New Yorker, says, "Between 1995, Lehman's first full year as a public company, and 2007, its revenues more than sextupled, while its profits grew more than seventeen times."
Letting Lehman Brother profit was obviously a disaster.
Kevin, I have appreciated your blogs, but I believe that you are solving the wrong problem. The bailout plan is fundamentaly wrong-headed, and will not work.
In essence, our current situation is the product not only of lack of regulation, but also of excess of liquidity. Under Republican "supply-side" fiscal policies, we have been running huge budget deficits for 25 years (the glaring exceptions being the Clinton years), and this has been amplified to a truly staggering degree by the current administration. Putting the words "fiscal" and "restraint" in the same sentence seems almost oxymoronic by now. Similarly, during the Greenspan years, monetary policy was also as loose as could be imagined: no crisis was too small to throw money at, and no bubble ever needed to be deflated. During Bush's term, this combination was possible only because our trading partners -- especially the Chinese -- needed our purchases more than a return on the paper assets they received for them. (Dictatorships are more sustainable in a full employment, high-growth economy). But sooner or later, this will change.
Right now, however, America does not lack for capital. Instead, what is needed is revitalization of the very roots of our economic system. Government's proper role is to manage this revitalization to benefit the greatest number of people and to insure the least amount of suffering while the financial system restores itself to good health. Doing so requires shoring up the financial sector ONLY to the extent necessary to insure that its failures do NOT spread to "Main Street America." Put more directly, Paulson and company are correct that, absent a bailout, the financial sytem will undergo major, painful change. That is exactly as it should be and must be if capitalism and free markets are to function properly. Risk MUST continue to equal pain for those who take it, or it will lose all meaning. But risk to those who have chosen to bear it does NOT have to mean pain to those who needlessly suffer the consequences.
The proposed bailout is, in essence, yet another attempt to keep yet another bubble from bursting by providing yet more fiscal stimulus to the system. But what is needed now is investment in the much neglected underlying economy of this country: its transition to sustainability (energy efificiency and alternative sources, organic farming, recycling, etc.) as well as substantial investments in the infrastructure required for the new economy to flourish. These are legitimate roles for government, and will require major infusions of new capital. Smaller infusions will be required, if no bailout is provided, to prevent direct fallout to innocent individuals from bank failures. Thus, shoring up the FDIC and providing resources to mitigate to the extent possible the mortgage failures that are at the bottom of this particular bubble will also require federal intervention.
If the Paulson-congressional bailout is allowed to proceed, however, we will then hear a chorus of voices telling us that we cannot afford the investments I've just described (or the nationalization that you say might be needed to backstop this plan). All the nonsense about "big spending liberals" will rise to a veritable "Hallelujah Chorus," and Grover Norquist will have succeeded in drowning the non-defense portions of the federal budget in a sea of useless giveaways to the wealthiest among us. Obama already spoke in the debate about cutting back on his not especially ambitious energy proposals. This is precisely the wrong response to this crisis.
In sum, the planned bailout would destroy essential components of capitalist markets (namely, the pain of risktaking), fail to shore up the underlying economy, and divert capital -- yet again -- from areas where it is truly needed (but where, for whatever reasons, the market has failed to direct it) to yet more Wall Street games.
I fully understand that if the financial markets are not bailed out, there will be a major collapse, perhaps not unlike 1929. Markets which rise excessively, also fall excessively; that's the way the system works. The name of the game here is to make sure that heavy financial losses do not precipitate a Depression era loss of jobs, investment, etc. and heavy government investing in "Main Street" will prevent that.
Submitted by Hank (not verified) on Mon Sep. 29, 2008 11:28 AM PDT.
Guess what? Congress didn't pass the bill. Lets all go on strike and let the whole damn country go to hell if the neocons don't want to give back what they robbed. Let it burn. The middle class has been getting screwed for 20 years.
The system has already failed since the banksters do not trust each other to lend money, so they want money from the taxpayers. This is a hoax similar to 9/11. This is a great opportunity to change the whole system, starting by
thermiting the Fed. Money creation should be under supervision of the citizens - not the Jewish dynasties !
Yes! The Vote Failed, this is good. If Corporate carpetbagger rob the banks for 8 years then ask the depositor to put more money in the bank for them to rob again, we would be fools!.
This "Bailout" isn't a Bailout but a cover up to hide the methods used by corporations to steel money from the people hidden buy the illusions of "Market".
The FBI investigation is under way but will not show any connection to Bush before Bush leaves office, this was planned by his administration and exposed by Left wingers over a year ago.
If the gamblers lose the bet and ask you for more money to bet with, would you give them a dime?
(1) Liquidate ALL assets. The office building(s), the company jet(s), the company cars, The friggin' company leather office chairs.
(2) Pay your shareholders what you owe them, even if your top execs have to sell off all of their own assets. Even if you have to borrow from some other government (NOT OURS).
(3) Get the hell out. The American taxpayers don't owe you a damn thing.
Submitted by John Marden (not verified) on Mon Sep. 29, 2008 1:39 PM PDT.
Tel: 978-369-6807 JOHN MARDEN Fax: 978-369-1702 1325 LOWELL ROAD
e-mail: mardenhavenwood@yahoo.com CONCORD, MA 01742 September 29, 2008
A SHOT OUT OF CONCORD
common sense or nonsense?
For the U.S Treasury to buy moribund mortgage paper from our banking system for nearly three quarters of a trillion dollars is an investment in the illusion of hope rather than an offer of help. It is likely to be as foolish an error as were the Federal Reserve Bank (the Fed)'s recent reductions of its discount rate to 2% without organized support from foreign Central Banks. Those reductions failed to ease the sub-prime/foreclosure burden, their intended purpose. Instead, they devalued the dollar and exacerbated an oncoming international inflation, which the Fed and the Treasury desperately wish to avoid. They expect and hope the decline of housing values will counter any inflation, as it did in 1980 when we had a national economy.
There is no way in this day of globalization of the world's economies that a collapsing U.S. housing market can offset international inflation; but its collapse will sorely afflict us. Of greater harm than the social tragedies of foreclosure, sad as they are, will be the destruction of home equity values, the very base of middle class savings and investment capital. Its reduction not only increases the self-perpetuation rate of foreclosure, it stifles the business dynamic needed to counter a recession and may lead to a new economic horror, inflation/depression. Such a combination has long been considered an impossible marriage, but it is probably quite possible in the age of globalization. Hope is not enough. Common sense beckons for help to the homeowner, but in Washington, how common is common sense?
Our media, taking lead from politicians and their lack of insight into the vast economic changes induced by globalization, like to blame the crisis on the irresponsibility of Wall Street's bankers to whom, ironically, the reward of the billions will largely flow; yet evidence shows such blame is but partially true at best. It has been a useful red herring to hide the politically embarrassing admission that a propensity to inflate has been allowed to permeate the world economy for eight years by expanding our government operations, reducing taxes and enormously increasing the national debt. That debt hangs over the economic world like a sword of Damocles. Its growth has stoked the furnace of international inflation, making the past rise in housing values a mere predilection of the oncoming inflationary combustion. Recent increases in the cost of energy, food and most else are now igniting that furnace. The $700 billion dollar debt increase will be fuel to a fire that consumes much of our housing industry. The fate of Fannie May, Freddie Mac, AIG and the market collapse itself reflect how the Fed reduced the wrong interest rate.
In lieu of the current program, the Fed can and should instigate a covenant that will simultaneously offset dangers now flowing to both the investment/banking industry and its mortgagor customers. The mortgagors' plight and all home owners' equity values are equally fundamental to the problem. The banking industry should receive support only in exchange for release of value to its mortgagors. By contrast to pre-globalization economic orthodoxy, the Fed must march across that psychological railroad track to the debtors' side of the financial equation. It is a move that can revive the economy quickly at no real public cost. Failure will be enormously expensive; especially should recession beget a depression.
First the Fed must induce the banks to reduce the rate of interest they charge all solely or predominantly owner occupied dwelling mortgages (the reduction could be extended to other existing mortgages as circumstance may suggest) to a maximum rate of not more than the Treasury's T-bill rate, and to zero for at least one, but perhaps more three month intervals, such interest rates to be adjusted by the Fed as it watches for result.
In exchange for the banks (i) to grant that reduction of interest; (ii) to continue to service all the mortgages; and (iii) to guarantee to the Fed (and thereby to the American taxpayer) that each mortgage shall remain in good fiscal standing (real estate taxes, insurances, and reduced mortgage obligations fully paid), the Fed would discount those mortgages for the bank's original remaining net investment cost. Call it a phased guarantee against which the mortgagee institutions, including Fannie Mae and Freddie Mac, would discount with the Fed all owner occupant dwelling mortgages, the money to be distributed by the Fed as settlement or subordination of mortgage backed security claims may provisionally demand or the careful control of national price stability may necessitate. The discount cost would be the same 0% to the prescribed maximum charged the mortgagors less a reasonable management fee, thereby replenishing the banks' capital, but costing the banks nothing.
Undoubtedly the sum of discounted money flowing to the banks would be enormous; but that enormity reflects the problem and the recognition that the value of the housing industry and the care of our greater infrastructure now approach 40% of our GDP. In orthodox economic parlance these enormities should probably be ranked as too big to allow to fail and too important to allow to decline. It is socially accountable by measure of the real estate tax, an important consideration if and when the base asset value is made to decline. Furthermore, many banks need that money to survive; and the credits will be no drain to the taxpayer unless our mortgagors elect to abandon their homes for tents. The bankers, with the benefit of the Fed's guidance and control of payment, will be able to negotiate reasonable inter-institutional settlements with the mortgage backed security holders from the powerful position of available cash instead of the current position of disillusion, fear and despair, which offers nothing. This plan, furthermore, would immediately marginalize the foreclosure problem, allowing the Fed to concentrate upon the more important problem of international inflation at the international level. The plan would be phased out at the Fed's discretion. Mortgagors would then refinance.
Except for a relatively small number of difficult situations, the banks are likely to work out most remaining problem mortgage loans rather than pursue their foreclosure, because in addition to normal foreclosure expenses and probable loss at the auction block, each such proceeding would require the banks to repay the Fed's discount window loan in full plus a significant interest penalty, reflecting that a critical reason for the discount was to forestall the foreclosure. All normal commerce subject to the existing modified mortgage would be permissible.
The Fed cannot contend simultaneously with both inflation and recession. Fighting on the international inflationary front while a domestic recessionary battle continues will be like trying to fill the top half of a glass when the bottom half is empty. The effort will fail, letting foreclosures and job losses continue to eradicate home equity, damage the economy, and allow the infrastructure to decline. Furthermore, much of our nation's savings and pension value will wither away just as it is needed to restore the domestic business dynamic, let alone survive for its original purpose.
These thoughts were developed from discussions begun in August 2007; some of which comprise the e-mail attachment. The attachment is indexed below. If it is not tied to your e-mail and should be of interest, request it from me at mardenhavenwood@yahoo.com.
Pages 3 to 5: A short discussion re the sub-prime/foreclosure problem.
Pages 6-14: A longer discussion re the sub-prime/foreclosure problem.
Page 15: Copy of last accompanying letter to Congressman Barney Frank.
Page 16: Copy of December 11 letter from Congressman Barney Frank.
Pages 17 -19: Copies of a March 3 and May 17 letter to Congressman Frank.
Page 20: Copy of reply from Congressman Frank.
Page 21: Copy of my reply to his letter.
Page 22-23: Copy of letter to Professor Blinder.
Pages 24 -25: Copy of two recent accompanying letters to Congressman Frank.
Pages 26-38:
IN INTEREST OF BREVITY I TOOK MUCH OF THE ABOVE FROM EARLIER EFFORTS SET FORTH HERE. SOME OF IT MAY BE OF INTEREST; MUCH IS REPETITION.
Pages 39-51: A SHOT OUT OF CONCORD A Marshall Plan for America September 27, 2007; re-edited 04/23/08
COPY OF AN EARLIER EFFORT SHOWING DEVELOPMENT OF ARGUMENT
In the short discussion I point out how our orthodox economic training must readjust to accommodate globalization. I quote:
Something better is at hand if the Fed can allow itself to attend to the crisis from the mortgagor or debtors' side of the economic equation. This very idea challenges the economic orthodoxy of the last 64 years of the twentieth century. To jump away from its understandings is a difficult leap for the patrician economists, bankers, investors, CEOs, lobbyists and politicians who control our plutocracy. Under the current pressure of events they search for recovery where they can render an immediate benefit to their well represented investment/banking side of the equation, otherwise called "the market;" but they adopt the complacency of a sound-bite such as "an overdue market place correction will soon reverse the crisis" to the mortgagor or debtors' side and then let the sacrosanct economic doctrine of a laissez-faire market-place correction fall like the axe of the guillotine on the neck of the home owner debtor. Globalization requires a change from the economic orthodoxy of the past century and its national economies.
Submitted by John Marden (not verified) on Mon Sep. 29, 2008 1:47 PM PDT.
Tel: 978-369-6807 JOHN MARDEN Fax: 978-369-1702 1325 LOWELL ROAD
e-mail: mardenhavenwood@yahoo.com CONCORD, MA 01742 September 29, 2008
A SHOT OUT OF CONCORD
common sense or nonsense?
For the U.S Treasury to buy moribund mortgage paper from our banking system for nearly three quarters of a trillion dollars is an investment in the illusion of hope rather than an offer of help. It is likely to be as foolish an error as were the Federal Reserve Bank (the Fed)'s recent reductions of its discount rate to 2% without organized support from foreign Central Banks. Those reductions failed to ease the sub-prime/foreclosure burden, their intended purpose. Instead, they devalued the dollar and exacerbated an oncoming international inflation, which the Fed and the Treasury desperately wish to avoid. They expect and hope the decline of housing values will counter any inflation, as it did in 1980 when we had a national economy.
There is no way in this day of globalization of the world's economies that a collapsing U.S. housing market can offset international inflation; but its collapse will sorely afflict us. Of greater harm than the social tragedies of foreclosure, sad as they are, will be the destruction of home equity values, the very base of middle class savings and investment capital. Its reduction not only increases the self-perpetuation rate of foreclosure, it stifles the business dynamic needed to counter a recession and may lead to a new economic horror, inflation/depression. Such a combination has long been considered an impossible marriage, but it is probably quite possible in the age of globalization. Hope is not enough. Common sense beckons for help to the homeowner, but in Washington, how common is common sense?
Our media, taking lead from politicians and their lack of insight into the vast economic changes induced by globalization, like to blame the crisis on the irresponsibility of Wall Street's bankers to whom, ironically, the reward of the billions will largely flow; yet evidence shows such blame is but partially true at best. It has been a useful red herring to hide the politically embarrassing admission that a propensity to inflate has been allowed to permeate the world economy for eight years by expanding our government operations, reducing taxes and enormously increasing the national debt. That debt hangs over the economic world like a sword of Damocles. Its growth has stoked the furnace of international inflation, making the past rise in housing values a mere predilection of the oncoming inflationary combustion. Recent increases in the cost of energy, food and most else are now igniting that furnace. The $700 billion dollar debt increase will be fuel to a fire that consumes much of our housing industry. The fate of Fannie May, Freddie Mac, AIG and the market collapse itself reflect how the Fed reduced the wrong interest rate.
In lieu of the current program, the Fed can and should instigate a covenant that will simultaneously offset dangers now flowing to both the investment/banking industry and its mortgagor customers. The mortgagors' plight and all home owners' equity values are equally fundamental to the problem. The banking industry should receive support only in exchange for release of value to its mortgagors. By contrast to pre-globalization economic orthodoxy, the Fed must march across that psychological railroad track to the debtors' side of the financial equation. It is a move that can revive the economy quickly at no real public cost. Failure will be enormously expensive; especially should recession beget a depression.
First the Fed must induce the banks to reduce the rate of interest they charge all solely or predominantly owner occupied dwelling mortgages (the reduction could be extended to other existing mortgages as circumstance may suggest) to a maximum rate of not more than the Treasury's T-bill rate, and to zero for at least one, but perhaps more three month intervals, such interest rates to be adjusted by the Fed as it watches for result.
In exchange for the banks (i) to grant that reduction of interest; (ii) to continue to service all the mortgages; and (iii) to guarantee to the Fed (and thereby to the American taxpayer) that each mortgage shall remain in good fiscal standing (real estate taxes, insurances, and reduced mortgage obligations fully paid), the Fed would discount those mortgages for the bank's original remaining net investment cost. Call it a phased guarantee against which the mortgagee institutions, including Fannie Mae and Freddie Mac, would discount with the Fed all owner occupant dwelling mortgages, the money to be distributed by the Fed as settlement or subordination of mortgage backed security claims may provisionally demand or the careful control of national price stability may necessitate. The discount cost would be the same 0% to the prescribed maximum charged the mortgagors less a reasonable management fee, thereby replenishing the banks' capital, but costing the banks nothing.
Undoubtedly the sum of discounted money flowing to the banks would be enormous; but that enormity reflects the problem and the recognition that the value of the housing industry and the care of our greater infrastructure now approach 40% of our GDP. In orthodox economic parlance these enormities should probably be ranked as too big to allow to fail and too important to allow to decline. It is socially accountable by measure of the real estate tax, an important consideration if and when the base asset value is made to decline. Furthermore, many banks need that money to survive; and the credits will be no drain to the taxpayer unless our mortgagors elect to abandon their homes for tents. The bankers, with the benefit of the Fed's guidance and control of payment, will be able to negotiate reasonable inter-institutional settlements with the mortgage backed security holders from the powerful position of available cash instead of the current position of disillusion, fear and despair, which offers nothing. This plan, furthermore, would immediately marginalize the foreclosure problem, allowing the Fed to concentrate upon the more important problem of international inflation at the international level. The plan would be phased out at the Fed's discretion. Mortgagors would then refinance.
Except for a relatively small number of difficult situations, the banks are likely to work out most remaining problem mortgage loans rather than pursue their foreclosure, because in addition to normal foreclosure expenses and probable loss at the auction block, each such proceeding would require the banks to repay the Fed's discount window loan in full plus a significant interest penalty, reflecting that a critical reason for the discount was to forestall the foreclosure. All normal commerce subject to the existing modified mortgage would be permissible.
The Fed cannot contend simultaneously with both inflation and recession. Fighting on the international inflationary front while a domestic recessionary battle continues will be like trying to fill the top half of a glass when the bottom half is empty. The effort will fail, letting foreclosures and job losses continue to eradicate home equity, damage the economy, and allow the infrastructure to decline. Furthermore, much of our nation's savings and pension value will wither away just as it is needed to restore the domestic business dynamic, let alone survive for its original purpose.
These thoughts were developed from discussions begun in August 2007; some of which comprise the e-mail attachment. The attachment is indexed below. If it is not tied to your e-mail and should be of interest, request it from me at mardenhavenwood@yahoo.com.
Pages 3 to 5: A short discussion re the sub-prime/foreclosure problem.
Pages 6-14: A longer discussion re the sub-prime/foreclosure problem.
Page 15: Copy of last accompanying letter to Congressman Barney Frank.
Page 16: Copy of December 11 letter from Congressman Barney Frank.
Pages 17 -19: Copies of a March 3 and May 17 letter to Congressman Frank.
Page 20: Copy of reply from Congressman Frank.
Page 21: Copy of my reply to his letter.
Page 22-23: Copy of letter to Professor Blinder.
Pages 24 -25: Copy of two recent accompanying letters to Congressman Frank.
Pages 26-38:
IN INTEREST OF BREVITY I TOOK MUCH OF THE ABOVE FROM EARLIER EFFORTS SET FORTH HERE. SOME OF IT MAY BE OF INTEREST; MUCH IS REPETITION.
Pages 39-51: A SHOT OUT OF CONCORD A Marshall Plan for America September 27, 2007; re-edited 04/23/08
COPY OF AN EARLIER EFFORT SHOWING DEVELOPMENT OF ARGUMENT
In the short discussion I point out how our orthodox economic training must readjust to accommodate globalization. I quote:
Something better is at hand if the Fed can allow itself to attend to the crisis from the mortgagor or debtors' side of the economic equation. This very idea challenges the economic orthodoxy of the last 64 years of the twentieth century. To jump away from its understandings is a difficult leap for the patrician economists, bankers, investors, CEOs, lobbyists and politicians who control our plutocracy. Under the current pressure of events they search for recovery where they can render an immediate benefit to their well represented investment/banking side of the equation, otherwise called "the market;" but they adopt the complacency of a sound-bite such as "an overdue market place correction will soon reverse the crisis" to the mortgagor or debtors' side and then let the sacrosanct economic doctrine of a laissez-faire market-place correction fall like the axe of the guillotine on the neck of the home owner debtor. Globalization requires a change from the economic orthodoxy of the past century and its national economies.
Submitted by Dan Mortenson (not verified) on Mon Sep. 29, 2008 4:57 PM PDT.
The main problem with the plan is at the core of it: the money will be used to buy up "troubled assets," which by definition aren't worth face value. People buying up (anything) simply in order to help the seller, are not going to get their money's worth.
Much better, to buy up good solid stock in the companies -- not "warrants," but real stock. Force a re-evaluation if necessary. The company would be worth more, and its worth would not lie on a flimsy base.
Those stocks would also make the American people stock-owners in those companies. Unlike some commenters (Paulson among them) I would not want those holdings to be sold off, but held in trust for the people.
They keep saying they want an "ownership society." Let's create one. I could use a several-hundred dollar dividend check every year, based on pooled private holdings managed by the government.
It works wonderfully in Alaska. I say its time for a US-PFD!
Thom Hartmann and Joseph Stiglitz have each written articles showing how we can accomplish the main objective of freeing up credit through a pay-as-you go approach that does not ask ordinary tax-payers to bail out the people who created the mess in the first place.
There is no need to concentrate power in the Treasury department and to use public money to finance private osses.
"Privatizing profit and Socializing loss," as one commentator on Bill Moyers put it. Not a good idea.
Question for John Marden
John,
How does a global economy differ from a local based economy? The supply / demand, and other basic principals still apply don't they?
Part of the reform we need on our own shores to regain confidence (we've hit bottom and are now on the up...), includes reforming the "free world economy" so trade rules apply to all parties...not just the WallMarts and others enjoying benefits of cheap labor, lax environmental regulations, and other "artificial" reasons for not producing locally.
Inflation, be it local or global is a negative for any economy, and as the dollar falls...as prices are rising from higher demand for oil and other raw materials, then the buying power of other folks' currencies will fall too. The net effect being the same as my neighbor's home falling in value too. We all get screwed--Chinese included as they have to pay more to produce stuff and cannot sell as many widgets as they experience the same inflation (increased prices for food, non-subsidized energy, transportation, etc...)
I believe the key to solving this economic problem is to arrest the slide...regain confidence by pumping the notion we've hit bottom. Bottom is a relative concept, but once it's established, economies begin to strengthen again. It's time the media get the word and instill the notion early birds would do good to come out of hiding and reinvest in undervalued real estate, stocks...even bank stocks that aren't overvalued. Real estate is a bargain in many areas comparing building with today's labor and materials costs. Innovative business proposals based on sound business plans should also play into the loan program.
How to establish this bottoming out? Not with an obscure $700 billion bail-out. Some of your suggestions are valid, though bailing out the mortgagor who got in over his head (whether or not he/she was mislead by greedy investment bankers) simply leads to bad feelings by those who aren't responsible yet are expected to pay for the bail out...those who didn't get in over their heads and are also losing their home values and 401K's. Solving the problem requires satisfying both injured parties without further damaging the other.
My suggestion is to create another "New Deal", with specific job creating programs that could bring about independence from foreign product dependencies (including oil!). The first candidate to spin their rescue plan to include such, rather than Paulsen's pie in the sky obscurity, will be rewarded on election day. Instead of buying worthless loans from bank, make it clear the Govt. intends to borrow as much as 350 billion, or HALF the amount suggested by Paulsen. This way we can say we're meeting everyone half-way. Still, 350 Billion is more than we may need, and as it's doled out in responsible loans to those able to come up the normal 20% down (or collateral), we'll begin to restore credit and credibility flow. As the media picks up on people snatching up real estate deals, this will ignite a positive reverse trend.
Who's to dole out the dough?...a government regulated banking system with effective oversight, as we had it once before. Banks that would otherwise have to close would be back in a legitimate business for a change. In addition, the Govt. bail-out terms would limit excessive pay to top executives so the general public doesn't feel they're being sucked dry by greedy sharks that got us into this mess in the first place.
More to the point on specific spending:
1. Loans to individuals for solid real estate based on the normal 20 percent down. There are plenty of great deals out there now, and many folks are just waiting to pounce once it's clear we've hit bottom. The same who walked away from their mortgage obligations should be given a second chance as they come up with the required down payment. I.E., bankruptcy stigma should not play into the recovery.
2. solid business loans for manufacturing given a higher priority over the more "intangible" service related businesses including multi-layered sectors administering for the insurance, health, and other industries.
ITS A MATTER OF NATIONAL SECURITY TO MAKE MORE OF WHAT WE NEED IN OUR OWN COUNTRY. Not just cars in Michigan, but rather shoes and bicycles in states willing to help with facilities...in areas where labor rates could translate into products competitive with foreign producers. Many foreign countries have a record of lower productivity per person. They also have their share of greedy business owners and corrupt government officials (same as we have on the local, state, and federal levels taking handouts from special interests).
I think the Democrats scored a real coup by supporting this lousy idea - the Republicans get the blame for nothing getting done. Good thing it didn't actually pass - though the Repugs would have taken the blame for that, too, they lose either way.
I hope that they can hammer out a more sensible plan now - but I'm not gonna hold my breath, good policy rarely emerges from the D.C. festival of political posturing that we laughingly call a government.
"Letting Lehman Brother go bust was obviously a disaster. Everyone agrees we can't let that happen again." - What kind of manure is that? I don't agree. So it's at least everyone less one - and, I suspect, maybe quite a lot less than "everyone". Let the big investment banks fail - sure there will be some anxiety among the elite classes - but why not make those responsible for the crisis pay for their malfeasance? Whose side are you on, anyway, Mr. Drum?
Submitted by JT Barrie (not verified) on Tue Sep. 30, 2008 7:37 AM PDT.
We got into this mess because regulations require listing questionable assets at the lowest price payable. A lot of the "losses" are on paper only. As a self employed person for much of my life I know how easily one can make real spendable income vanish - on paper. That's how companies losing money "on paper" can pay ridiculous salaries and benefits to their management.
If we stopped regulating financial institutions and allowed for more free market competition a lot of these problem investments would resolve themselves. Why keep forcing artificial pricing upon businesses who can do better - or worse - on the free market. As long as coercion and unfair market practices don't meddle with competition, the less government the better. All the fees and charges on consumers are a result of granting banks and other financial institutions a "license to steal". If one institution robs consumers everyone has to because competition is restricted by regulation. Did you know that it is illegal for insurance companies to seriously compete for consumers with low prices? Every other business competes for market share and consumers benefit. No wonder banks contribute heavily to political campaigns.
