On a day's reflection, I think we dodged a bullet with the failure of the Bailout/Power Grab proposed by the lamest-of-all-ducks Bush Administration - although I have to say I don't feel any anger or rancor towards those who supported this - with the exception of some key players, I think most people on both sides of the aisle and the issue were acting in good faith and with good intentions on this one.
But what now? What might a real plan look like?
My back-of-the-napkin proposal after the fold.
- Strengthen the FDIC. Double the amount of deposits protected to $200,000, and pump $100B into the fund that insures bank deposits, which on June 30, had only $45.2B FDR was right - our main enemy is fear - but with a cascade of bank failures, fear may be justified - and the last thing we need at this point is a flight of deposits from banks.
- Immediately set a moratorium on foreclosures until we can revive the HOLC - buy up bad mortgages and renogotiate modified but fair terms to allow borrowers to keep their homes. This addresses the immediate problem of toxic mortgage-backed securities from the bottom up.
- $350B (like Paulson's $700B, a figure pulled out of a hat) to purchase equity stakes in financial institutions holding the distressed securities that were to be the subject of the failed bailout bill, contingent upon strict adherence to prudent management practices. This addresses the immediate problem of toxic mortgage-backed securities from the top down by providing liquidity but without being a giveaway.
- Nationalize health care. HALF of bankruptcies are caused by illness or medical bills - while one-third or more of health dollars go to feed an insurance industry that profits only by denying care. All those people going bankrupt because they or a loved one got sick are people who are also defaulting on their mortgages or other debts. It's time to start addressing the root causes of our problems and this is one of the biggest. Providing health insurance to everyone is not the answer because the parasitic economic perversity known as the health insurance industry IS the problem. This failed and fundamentally flawed paradigm is like a stone in the shoe of our economic system. What we need to do is provide health CARE to everyone.
- Don't rush this. One of the harsh realities of this crisis is that it is in large part based on over-leveraging and overly optimistic valuations. What goes up, must come down, and over-valued assets must do the same. A lot of 'assets' that are priced at nowhere near their values are going to have to find their actual market levels and unfortunately for those holding those assets, there is going to be some pain involved.
What are your ideas?