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In Which I Solve the Financial Crisis

September 21st, 2008
By JAZZ SHAW, Assistant Editor

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People are already analyzing and over-analyzing the responses to the financial meltdown, such as they are, while others are writing off Paulson’s only partly formed proposition before it gets off the ground. Since I’m sure that both the President and Congress are waiting with worms on their tongues to see what I have to say on the subject, I may as well wade in and solve this thing before we blunder our way into something disastrous. I recall when Paris Hilton decided to solve the energy crisis and embarrassingly came up with a proposal which was pretty much as good as anything from the two major party candidates. With that in mind, I’ll pitch a hybrid of a few ideas already floating around.

First of all, a blank check without any answers provided to pressing questions should be out of the question. We have to get something of substance for our money if we’re going to help them out, and it needs to be more than just toxic, dud financial instruments backed by deadbeat loans. A cushion of funding may help some of the more solvent companies through the crisis, and they could sell the government a combination of both questionable and solid paper.

Their core insight is that it is better to boost the banking system by increasing its capital than by reducing its loans. Given a fatter capital cushion, banks would have time to dispose of the bad loans in an orderly fashion. Taxpayers would be spared the experience of wandering into a bad-loan bazaar and being ripped off by every merchant.

We go into the deal expecting a percentage will go south, but others will provide some payoff. This should be combined with additional payments over an extended period.

…in return for taking toxic assets off of a firms books at a price that is higher than the market rate, the government would get a share of any future profits the firm makes for some time period, say 10% for ten years, something like that. Administratively, it could come as an increased tax rate on profits and, if it helps politically, it could be earmarked for a particular cause.

I agree, and that specific cause would be that every bit of profit from taxes of the eventual sale of these products (the ones that don’t fail entirely) goes directly and only to paying down the Federal debt.

Even this isn’t quite enough, though. If we’re going to save the skins of these greedy bastards, we at least deserve a smidgen of vindictiveness.

I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.

We could probably find some combination of the above which might satisfy most of us and get the job done. Failing that, I do have one other solution to offer. The hard core free market, anti-regulation enthusiasts among us should step up to the plate and take ownership of not only the theory, but the practice of their beliefs. The Fed can do precisely… nothing. Let it happen. Let the Wall Street mansions fall like dominoes. The market is simply responding to reality and appears to be on the verge of experiencing a “correction” in a sudden and dramatic fashion. It’s the most natural thing in the world, really. Will it actually be the end of the world?

Some time back, as you may recall, the airline industry experienced its own collapse. Many companies went into bankruptcy, but are now coming out the other side, leaner and hopefully more efficient. And in the intervening time did any of you notice any difficulty in catching a plane? No. If there is a demand for any goods and services, somebody seems to come along to provide them and grab the opportunity to make a profit. So let the lenders go under, and take a page from John McCain’s book. As the top dogs bail out on their billions of dollars in golden parachutes leaving destitute investors behind in the wreckage, ensure that the media makes them famous. Let everyone know who the real villains were in the play. Who knows? The industry might come back a tad more responsible and honest next time.



This entry was posted on Sunday, September 21st, 2008 at 7:13 pm and is filed under Federal Reserve, Wall Street, Economy, Business. You can leave a response, or trackback from your own site.

Viewing 2 Comments

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    • v
    I don't understand. The market will take care of itself. Let the market take care of itself. Let all these companies deal with their own stupidity.

    Example of this is CITI Credit Card. I hate this company. My bill was due on the 12th of September for the amount of 52.65. I was late. Opps. Forgot to just mail it. So I sent it in on the 15th and they get it on the 18th.

    Now I get a recording on the phone. Your account is past due one payment and the amount due is 232.65. Press one if you would like to pay this now. Press 2 if youd like to pay a different amount or press 3 if you would like to see CITI go BaNKRUPT.

    I vote for 3. How about the rest of you. They cant even add.

    Now Im not making this up. Not only that but now my interest rate will jump from 7.74 percent to 32.99 percent because I was 7 days past my due date.

    I vote for letting the dust settle. Credit is a great evil and the companies that have embraked upon embracing it as a way to earn money have taken greed to new heights.
    • ^
    • v
    We are nearing the end of American prosperity. Republican destruction: of the middle class, of the trade unions (the only route for the working class into the middle calss), the housing market (the only place for "normal" people to build some real equity, and now the last bastion - the financial markets - has led us to the cliff edge.

    Throw a few billion to fix it? To whom? to what end?

    The problems for today NEED - BRAINS - the decisions that are needed are BEYOND my level of knowledge - beyond my "pay grade". I don't trust that anyone can get us out of this - but at least Obama has the BRAINS and TEMPERMENT to tackle these almost insurmountable problems.

    Obama - you've got my vote.
 
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