At this very moment, a simple solution to the so-called banking catastrophe exists, one that will actually turn a profit for the taxpayer. So why isn't it being considered by the Dems and GOP lawmakers supposedly working feverishly on Capitol Hill to unload the burden on the taxpayers?
Because they and their friends stand to lose millions of dollars in their personal portfolios.
What is this common sense solution? It involves eight steps:
- Close the markets for two weeks.
- Open the mortgage backed portfolios.
- Identify all high risk mortgages (at most 10% of portfolio). Publish the contract numbers, trace the derivatives.
- Assess exposure.
- Fed guarantees loans for exposure against solid institutional assets (probably >100X exposure) as collateral.
- Pass a predatory lending mortgage interest restructuring bill which only helps those who are at risk of losing homes due to provable predatory lending.
- Reinstate the Glass-Steagall Act.
- Open the markets.
Why is this painless solution so unpalatable? Why aren't Obama and McCain pressing for this? Because a very select few will feel a lot of pain: those who hold stock in the faltering institutions. And this is the last piece of the puzzle.
If the institutions are borrowing money against their solid assets, their future profits are going to be diminished by the burden of principal and interest. Combined with the Glass-Steagall Act profits will be retarded for years. But, they'll still make profits. Why is that so bad? Because the relative stock value will settle at a price much lower than what a lot of fat cats bought it for, and that will cause those fat cats to lose billions of personal wealth.
Right now the Dems and GOP are locked in a false struggle with a lot of smoke and mirrors to come up with a plan that does one thing and one thing only: Restore the value of the institutional stock to a level acceptable to those whose personal portfolios are most at risk.
If Obama wants to put Main St before Wall Street, and McCain wants to put country first, I urge them to abandon their fat cat friends and come over to our side.