Thursday, October 02, 2008

How I would fix the Economy without a Bailout

I think we need to all agree the bailout is a bad idea. Whether you believe Ron Paul for saying it provides a false bottom to an economy while not growing demand to match it, or whether you believe it sets a bad precedent that wall street can run business irresponsibly while fleecing money from main street with no repercussions because the government will bail you out. Fundamentally it is flawed to let business run in the ground by poor management to continue to be in business on the tax payer's dime.

So why the bail out? "The core of the bill allows the Treasury Department to buy $700 billion in bad mortgage assets from banks, to be held and eventually sold off if and when the market improves. Ideally, with cleaner balance sheets, banks would start lending to each other again, loosening up the nearly frozen credit markets."

Here's my solution. I believe rather than continue you follow the failed trickle down economics with a penchant for deregulation that got us here in the first place and hope the $700 billion dollars "ideally encourages banks to start lending again" - I say let the banks run themselves into the ground and have the government resolve the credit crunch by DIRECTLY LENDING MONEY TO THE MARKET.

Yes. I am proposing that rather than buy up all the "toxic loans" to relieve the banks their burden and free up their cash to be lent out again - have the government instead profit by making home loans, car loans, business loans etc directly to the market. In fact - if you want to stimulate the economy the government could loan money at lower interest rates than we have ever seen (think about a 3-4% home loan). And instead of the tax payers bailing out a cool $700 billion, have the tax payers turn a profit from this governmental lending.

BUT THIS IS OUTRAGEOUS! The government shouldn't be in business it would ruin an entire industry! Well - the financial industry did that all on their own, I say let them crash and burn but keep the economy stable through my plan. Additionally - I also propose that the natural progression of my plan should be for NEW banks to be created - and run responsibly, and slowly over time the government should reduce it's role in lending until the whole thing shakes out with a completely new crew of banks and the government is out of the industry all together.

Rather than wasting tax payer dollars on businesses who are fundamentally flawed, use the resources of the government to directly stabilize the economy for a period and make money for the tax payers in the process instead.

Just my two cents...


ddting said...

Hey Tom,

I probably have enough to write a whole blog on this topic too... but I have thing point that I haven't seen people make yet... Maybe people are overvaluing owning a house? That's what got us into this mess in the first place. People will overextend themselves just to buy a house, which causes mortgages to go into default, etc.

Dave said...

I just posted a blog on this. I don't see how the gov't will profit from these loans. The banks weren't making money on these loans because people aren't making payments on them.
The only 2 ways to profit would be to repossess the houses from people as they go bankrupt (profit only if they could sell it for more than what they paid in the bailout).
OR issue some kind of Section 8 assistance or loan to enable people to make payments they can afford.

Karen said...

This hits one of my pet peeves of many people (lots in our generation) thinking that they deserve all this stuff that they haven't earned. For example, there is no way that a family making $50,000/year pre-tax should be living in a $250,000 house. But that's just what's happening. As a result of this and other forces, foreclosures are going crazy and we've slipped into this state.

I like your plan. i think this bail-out is not a good idea. I wonder if/when small businesses will be looking for bail-outs too as the government is now setting the precident that it'll quit being a government and start beign a business.

Michelle said...

AMEN (let em crash and burn)

Finlands finest said...

I like your idea!

Anonymous said...

I also had similar thoughts, but couldn't put it down on paper as well as you did. Yes, instead of bailing out the banks that made bad decisions (remember, not all banks did), directly lend money to the market. Companies need to suffer consequences for taking on reckless risk and making irresponsible decisions.

As for ddting's comment about people overvaluing houses, so let them. That's how the free market and stock market work.

It's not an individual's responsibility to make sure that the nation's credit system is stable. It's the banks' responsibility. They have to cover the possibility of loan defaults when the market is overvalued. That means raising mortgage rates to cover the defaults.

Martha said...

To many people on government assistance, the government already gives loans at much lower interest rates. They were already *in that business*.