Bankers have been treated like bad rich kids with every need met so that Daddy Government isn’t so embarrassed. This was the public relations idea that hasn’t worked. As a result of this public relations nightmare, the federal government has continued to overextend itself in the name of security and confidence as the instrument of last choice. Oh really?
As a result of this mindset, the Treasury has run amok in a virtual panic through the system looking for toxic debts and tried to figure out the crisis using the best brainpower that is available with banking debt so complex as to make you give up. That is what Hank Paulson did. Banks continue to snivel about their needs within the broken system that they created.
What’s worse, the world of top-notch education and best brainpower available coupled with self interest has brought the nation, albeit, the world to its’ knees with only excuses for any hope of redemption. Paulson couldn’t find all the debt or deal with the tentacles of the impossible situation. Timothy Geithner still isn’t thinking outside the box of rules he is used to. Paulson’s terminal frustration and Geithner’s government-man thinking don’t have to be. They have been beholden to the system. There is a solution.
This solution is much the same as the raw deal handed out to homeowners in do-it-yourself mortgage crisis that continues to beleaguer the nation of taxpaying American citizens. The nation is threatened, say those of superior intellect, because ‘undereducated Americans’ can’t seem to get it together. Bankers and servicers have done little or nothing to stem the tide of foreclosures because there is little self-interest in doing so in the short-term. The short-term is the measuring stick of capitalism today.
Since bankers and their ilk are so highly educated with plenty of basic internal resources, the Federal Government needs to install a new idea that involves do-it-yourself capitalism. This do-it-yourself system takes the burden from Daddy Government’s hands and puts the responsibility squarely on the shoulders of those that spawned the crisis. Daddy Government isn’t going to be involved any more beyond the cleaning up by the FDIC, but Daddy is going to supply the credit tools necessary to do the job.
Uncle Hank couldn’t find all the toxic debt which ultimately ended the bailout that the nation had intended. However, in the world of banking capitalism, rest assured that if you have toxic debt, you know it. Banks are hiding toxic debt based on their own fear and trepidation, the ultimate public relations nightmare.
Enter Ben Bernanke’s Federal Reserve, the answer to all liquidity. Set up yet another credit window, this time wholly financed by the Federal Government. This doesn’t mean that the other tools used by the Fed aren’t financed by the taxpayer and the federal government, but I digress.
In this case, the suffering banker knows of his liquidity issues and always has. This time, instead of expecting the Treasury Secretary to come to the rescue, the bankers are to cash out their toxic debt at a preassigned value as presented to the Fed. Think cheap. Think bargain basement. The Fed, using credit guaranteed by the American taxpayer (of course) will issue monetary credits to the bank in exchange for ownership of the toxic debts in a nationwide fire sale of sorts. The toxic debts are and most likely, forever will, be worth virtually nothing. They will be removed from the system and these flawed toxic debts will never be sold again. We will plan to eat the cost. The responsibility is on the bankers which is exactly where it should be. To make life good, everything will be publicly anonymous to save the possibility of embarassment.
In exchange for this generosity and real bailout by government, these banks will guarantee in blood that all monies received for such bailout will be used to fund loans to taxpayers and small businesses with relaxed terms that generally creditworthy citizens and business in today’s economic climate can meet. In other words, stable income is required, but no more endless profiteering and nitpicking that banks love to keep their credit out of the system. For large bank holding companies that hold toxic debt and cannot directly assist in rebuilding the economy and improving liquidity to the economy, there will be no further bailout.
The first part of the plan would be enough, but the second part of this plan is sheer genius, but not for greedy capitalist bankers.
In the second phase of the plan, bankers will be required from a certain date in the immediate future to update cash holdings for their fractional reserve. Instead of being able to loan out 90% of cash holdings, they will be required to hold on to 20% their holdings without loaning them out. This will allow an extra margin of security since the traditional 10% hasn’t worked to keep banks solvent. The reality is this, like it or not: the fractional reserve of 10% is part of what got bankers into this mess with toxic debt. The idea of easy money is what fueled the crisis. Money is no longer going to be so free and easy for bankers. They will be living on less and making more loans or cease operation and sell off their accounts. An uncooperative greedy banker is the worst sort of animal. It is time to remedy that problem with a little less manufacturing of money. 80% of new loans out of thin air fueled from deposits and downpayments will be enough. Bankers will now be keeping 20% on reserve instead of the traditional 10% moving forward. Of course, this will involve keeping two set of books, one for old loans at the traditional old rate and another for continued business, but bankers are good at keeping books. Will bankers buy the idea? There won’t be any choice if they want to survive. What is best is that no nationalization will be required, an action that renders zero benefit to the taxpayer. ~ E. Manning