To the surprise of very few who have been paying attention, the Wall Street bailout has had little positive effect on making credit available to businesses or individuals. The $350 Trillion in TARP funds already made available, plus the almost $1 Trillion in loans directly from the Federal Reserve, have only been used to replace capital already recognized as lost, or to buttress balance sheets in anticipation of the write-offs to come as the economy slides deeper into recession.
Also to the surprise of no one, every industry, trade group, union, state government, municipality, or anyone who knows a lobbyist has formed a long line in order to get “their share” of the bailout. And I continue to predict that the federal government will continue to write checks to every interest group possible before they do what I cynically believe they already know needs to be done: Make credit available directly to the American people and Small businesses via temporary government backing of basic credit facilities.
Since I wrote my first proposal, I have been trading e-mails with Peach Pundit regular and ControlCongress.com editor John Konop. We both share similar ideas about the need to drive the economy via consumer behavior. As such, we have worked to put together a plan to lubricate the wheels of the economy by making available sensible, properly leveraged credit.
An old axiom of government is that for every action, there is an equal and opposite over-reaction. This is the current situation in our credit market. Failure to regulate leverage has lead to a current environment where lenders expect to be over-regulated. Only customers with spotless credit are able to make purchases. Yet, due to the economic downturn, many people will have their credit blemished that may still have good jobs, down payments, and the ability going forward to repay loans.
There are many who share blame that got us into this mess. But we believe that the solution is in rewarding good future behavior. The blame game can continue until the end of time, but we must lay a foundation to get us back to a market-based, productive economy once again.
America’s economy is a credit based, leveraged one. We can not expect this to change over night and remain an economic super power. As such, we must return to the lessons learned in the wake of the great depression, which was largely caused by stocks being bought on margin without proper leverage: A borrower must have sufficient skin in the game, i.e. a proper down payment, if the lender has any chance to expect repayment. Thus, in this proposal, the borrower’s down payment of hard money is key to getting new loans. The other keys of credit include capacity, and income verification, an easy process that many lenders did away with during the last decade, is also prominent.
Credit scores, however, are not featured here. While credit scores made it too easy for many to borrow above their means in the past, we believe that they are likewise keeping many from being able to take loans now that they could afford to repay. Thus, if other conditions on these loan programs are met, past credit history is not part of this underwriting criteria.
The other key part of this plan is that it includes everyone. It is not a small, narrowly focused plan aimed only at those behind on their mortgage, or those who fit some nebulous definition that the government has decided should be a “winner”. Those that have played by the rules, and lived within their means, should be able to take advantage of any broad based stimulus package. To do otherwise would be punishing success and rewarding failure. That’s not the American way.
The plan includes the following parts:
Part #1—Home Refinancing: The federal government shall offer existing holders of federally-guaranteed mortgages (Fannie Mae, and Freddie Mac) the opportunity to refinance their primary residence at 4.0% on a 30 year or less fixed payment mortgage at 80% or less Loan-To-Value, or 4.5% up to 105% of home’s value. Any amount above 100% LTV can either be written down by 50% by the lender voluntarily, with the government guaranteeing an 8% second mortgage with a 10 year amortization to capitalize the remaining upside down balance, or the lender would have to subordinate it’s position to the government with a second (or third, in the case of an existing 2nd mortgage) position, with no guarantee, and an interest rate also capped at 8%.
The key to this plan being successful, and keeping people in their homes, would be to make these mortgages assumable. Based on the amount of money being pumped into the system, it is reasonable to expect that we will eventually turn from today’s deflationary environment into one of reasonably high inflation. As such, as 4 or 4.5% mortgage would provide significant value in an environment with even 6 or 7% interest rates, and would thus increase the value of homes that are considered to have negative equity today.
This plan should keep people in their homes, thus putting a floor under today’s low home prices. It would cut homeowner’s payments across the board, freeing up a massive amount of discretionary income to stimulate the economy. It would cleanse most toxic portfolios from banks’ balance sheets, and restore confidence in inter-bank lending. And given that these loans are currently implicitly backed by the Federal Government already, (and that the 30 year treasury is just above 3%), the additional cost to the taxpayer should be negligible.
These refinance loans would be made available to anyone who currently holds one of these mortgages, regardless of any other conditions.
Part #2—New home purchases: The federal government shall guarantee 80% of a new home mortgage if:
1) The mortgage is offered for 4.5% interest or less
2) The buyer is employed with a strong work history
3) The amount of the buyer’s monthly mortgage payment meets proper debt to income ratios
4) The buyer puts down 10% of the purchase price
5) The house meets all proper valuation checks
6) The borrower pays a 1 percent origination fee set in reserve against loses
7) Program available for refinance of non-government backed loans that do not qualify under Part 1
Similar to the refinance proposal in part one, and with many of the same benefits, this program has additional restrictions on qualification to ensure that we don’t repeat the cycle of the government mandating loans be given to individuals who cannot afford them, but does make it easier for those who have credit issues to re-enter home ownership if all other factors outside of credit history warrant.
Also, because of the proper Loan To Value requirements up front, there is no need to add the assumable feature to these “new” loans as an incentive to stay in a home with negative equity.
Part #3—New car loans: The federal government shall guarantee 80% of on a 7.5% or lower auto loans if:
1) The loan payment meets proper income to debt ratios
2) The loan term does not exceed 60 months
3) The borrower pays a 1 percent origination fee set in reserve against loses
4) The borrower makes a down payment of at least 10% of the purchase price
5) A 3% discount of the rate will be given if the car meets or exceeds 27.5 MPG (current CAFE standard) and SUV/Mini Vans meet 25 MPG or better (4.5% rate). And additional 1% will be given if the car is electric, diesel, or hybrid fueled vehicle (3.5% assuming the MPG hurdles are also met)
6) The maximum loan amount per vehicle will be two times the 2008 average transaction price, or approximately $47,000.
The low interest loans apply to consumers, businesses, and state and local governments and will encourage fuel efficiency, decrease reliance on foreign oil, reduce greenhouse gas emissions, stimulate the economy, fights inflation and support the auto industry.
Part #4 – SBA guarantees.
The equity requirements for all current SBA lending facilities will be immediately cut in half, so long as all SBA loans affected by this change still require a 10% minimum equity contribution.
These proposals should be temporary, but on the books long enough to give those still in financial difficulty, facing foreclosure, bankruptcy, or unemployment incentive to work through their personal financial issues, plan to start fresh with proper leverage and debt ratios, and maintain their optimism that the American Dream is still possible.
This is a direct financial solution to Main Street America. It represents the best of the American Spirit, where every taxpayer has the ability to receive some sort of direct benefit. Rather than giving money to “banks” or “industries”, it rewards average Americans. Most of the plans would have very little direct cost, and would provide benefits to the economy many times that.
The best way to get America working again is to invest in the American People. Let’s make it happen.
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Icarus,
I agree with your premises 100 % with access to credit being the key to the recovery and the governments obvious and foolish overeaction which is punishing those who drive the economy.
I would be very interested if you could put your considerable talent in this area towards a state based solution. I have no confidence that the feds can ever get it right and you are so on point with TARP and it is even worse than you describe. There are almost “TARP Political officer (loan) officers from the fed and Congress that are screaming for the money to be spent on loans for political reasons with no credit requirement. What a formula for disaster.
I have been struggling with trying to find a way to make Georgia a haven for such practices as you outline perhaps using the basis that they regulate state banks. In other words require it and let the feds come sue us and by the time they finally get us in court over the matter our financial institutions could show the success of the policies you outline. Just a thought.
I would be interested in your opinion
Here’s your Republican Party these days….
More Federal Involvement In Everything.
No wonder you supported Saxby. You disappoint me these days Icarus.
It has some similar elements to my plan. Investment is about risk/reward/liquidity. If risk is removed a certain type of investor will be motivated by the guarentteed return, especially if liquidity is high. If reward is substantial, then investors will tolerate more risk (to a certain limit) combined with a certain amount of loss of liquidity (also to a certain limit).
By guarenteeing certain loans, the government can take care of the risk side of the equation, but it might also be a good idea to subsidize interest (temporarily) to make the investments more attractive. On $1 trillion of loans, a 1% subsidy is only $10 billion per year. That is equal to about 5.5 million average priced homes or 40 million average priced new cars. If it truly is about making credit available again, this would seem to make more sense than the Dem-Bush plan of bailouts to their large donor investor buddies.
Jace,
Icarus is hardly one for an interventionist government, but the non-intervention side has lost. Sitting around hurling insults and watching as the other side causes even more damage by bankrupting the country without any positive result is immature and a waste of time. If the money is going to be spent (which it will be) at least it should be directed at targets that will eventually benefit pretty much every taxpayer instead of well connected people in Wall Street.
Rep. Ehrhart,
I’d be glad to, but also please understand that I think the State shouldn’t attempt to conduct macro-economic policy. The State’s job, in my opinion, is to deliver the required services at the appropriate level at a minimum cost.
However, there are good choices and bad choices available right now, and I know you and the rest of the leadership will have to make some tough calls over the next few months.
One quick question so I don’t have to go digging: How much is the State able to budget each year (Seems like I remember it is 98% of last year’s budget), and what is the legal cap on the amount the state can hold in Reserve funds (somewhere between 5 and 10%).
Doug,
The non-interventionalist side lost because it wasn’t given a chance. You have to be pretty gullible at this point to believe that more government intervention is the answer to anything.
Then again, you guys did vote for Saxby. Twice.
Icarus,
I’d say some pretty sound ideas in there. I’d also add a layer of some Federal arm-twisting on those TARP moneys on the second tranche that ban dividends and require certain types of conservative loans (like those that what used to be commercial banks were restricted to in the G-S days) to go with those government guarantees.
Long term, I’d like to see a reseperation of commercial banking from investment management and a pretty nasty round of good ol’ fashioned Trust Busting so that a collapse of one or two firms (in almost any industry) does not imperil the entire economy of the nation or multiple states. Maybe an exemption for super-specialized goods like ballistic missiles and jumbo jets.
“An old axiom of government is that for every action, there is an equal and opposite over-reaction.”
I’d say this is the axiom of human behavior, and especially management. It’s not the fear of gov’t regulation that is making credit so tight – it is the fear of taking on any more risk while nobody knows what kind of toxic waste is rotting in their vaults.
Jace,
The part that everyone, on all sides, needs to understand is that we’re already there.
The governement is already on the hook for every loan mentioned in part 1.
In just the last 12 months, residential real estate in this country has lost over $2 Trillion in value. Given that these federally backed loans are over 50% of the loans outstanding, that means that the collateral for loans that you, me, and everyone else are backing has lost $1 Trillion in value. Add to it the cost of the TARP, the $1 Trillion in new Fed liquidity, the $1 Trillion in new spending that the brain trust that is our current Congress wants to spend to get us out of this, etc.,
and then compare the effect of that to recasting loans that we already back, backing more loans to shore up their value at minimal cost to the governement, and backing auto industry loans (the one area of lending that sub-prime has proven to work in for decades), also at minimal cost and substantial savings assuming the industry returns to 12 Million or more annual unit sales, and I think most people would prefer the above solution.
“The non-interventionalist side lost because it wasn’t given a chance. You have to be pretty gullible at this point to believe that more government intervention is the answer to anything.”
Um, default credit swap market, anyone? The very thing that lit the fuse in the first place? A derivative so unregulated that many companies don’t even know what their peers hold because there are not even reporting requirements?
There are many who share blame that got us into this mess.
You mean like, lobbyists, Icarus?
Icarus,
There was a time, when I would come on here and say crap like, “There is no difference between the two parties” and it was a joke. Everyone got a good laugh.
Now I can’t say stuff like that jokingly. Because it is absolutely true. There really is no difference between the two parties. You guys are whistling past the graveyard if you think there is.
Every time you promote more government intervention, you’re proving my point.
Simon,
Absolutely.
Jace,
This isn’t about Party, and if you’ve read some of my latest stuff, you would probably notice that I don’t necessarly claim the Republican Party, and a lot of them aren’t claiming me these days. Such is life.
Icarus,
I am leaving for meetings but I will get you an exact answere although I think you are correct on the percentages.
With respect to macro policy I agree although I think, and I know this is cynical, that the federal government will not and cannot solve this. We only have a prayer if states can come up with some way.
You were claiming the party pretty hard up until you got your *ss handed to you in the General election. And you were claiming the party pretty hard when you made the case for Saxby Chambliss. That wasn’t two weeks ago, Icarus.
You were one of my favorite front-page contributors on here. You were good at articulating limited-government economics, and you were funny. And Doug Deal was one of my favorite commentors for the same reason. You were both very logical and articulate.
Now…it’s like you’ve both gone off the deep end with this interventionalist bullsh*t, and are content to just let it happen. I don’t understand.
on thing that would be helpful–i don’t think the gov’t needs to do it but if lenders would just be a little patient–esp. w/ longstanding otherwise reliable clients that are struggling a litle right now–i will admit we have been down this year, for a variety of reasons –some patients have been a little pokey paying their bills, some patients have opted for less expensive treatment, some have lost jobs and insurance and kinda disappeared, etc..as such our cash flow has tightened and we in turn have been late on a few things–well if creditors would forgive a few late fees here or not raise an interest rate there–we could climb out of our relatively small hole more quickly–but instead it will take twice as long b/c we have to catch up all the ancillary fees and penalties in addition to trying to pay what we owe, not let anyone else go and provide high quality care–maybe i’m the only one in this situation, maybe its silly of me to bitch about it–but that’s my rant and i’m sticking to it…
I think you need to consider why Doug and I, both with decent “limited government economics” cred as cited by you, would consider something like the above.
Take a look around at the actions of government right now, at all levels. Read the first post above by Chairman Ehrhart. Re-read it again.
Government at all levels is in a panic. (Not directed at Rep Ehrhart there, he’s just trying to find an anecdote to the panic raining down from D.C.). Most politicians have no idea what they should be doing, but they all feel they should be doing SOMETHING.
And that, Jace, is both the situation we’re in, and the danger we’re facing. They’re going to do SOMETHING.
Monetary policy won’t work at this point. Rates were dropped yesterday to practically zero. This means, quite literally, that banks can’t give money away.
Fiscal stimulus, in an integrated global economy, is slow, crude, imperfect, and inflationary. Yet we’re about to throw $1 Trillion against that wall and hope it sticks.
My/Konop’s/Anyone Else willing to claim it/’s solution is to take the framework that the governement already is operating in, namely that the goverment backs certain credit facilities, and temporarily expand it to cover auto purchases.
It doesn’t say you have to buy a Chevy. In fact, you get the best interest rate if you buy a Prius built in Japan, a Jetta Diesel built in Mexico, or a Ford Escape Hybrid built right here in the USA. The fed doesn’t pick the winners or losers here, the market continues to do so.
And it doesn’t do what the “stop all federal goverment actions now!” crowd does, which is ignore the fact that we’re already guaranteeing most of this money now.
Compare the cost of underwriting these auto loans, with the cost of the Pension Benefit Guarantee Corp and Medicare taking on the obligations of GM, Chrysler, and Ford. Those underlying obligations are already there, even if we do nothing.
So in my mind, we can either have 3 Million people employed building autos, and consumers buying those autos with below current market rates, or we can have 12% national unemployement, with unemployment benefits, pension benefits, and Medicare and Medicaid costs exploding.
I see a temporary limited expansion of existing frameworks far superior to either doing nothing, or the many other choices we’re about to receive by doing SOMETHING.
I did consider it. I have concluded that it is because you both have lost your minds. You know d*mn well that ANY expansion of government has never been, and will never be temporary or limited.
As a starting point could we at least get someone to sponsor a Constitutional Amendment allowing the Federal Government to do any of this? Just a thought…
Dr. Jay,
Not only are you not the only one in this situation, it folks like you that are the reason why the above plan is so important.
The small businessman/entrepreneur is the one that is bearing the biggest burden of holding the economy together right now. As more consumers lose jobs, or have wages/hours cut, they will slow their own payments, and put off services, or eat out less, shop a little less, etc.
Big corporations will generally still be able to get credit, but the small guy is already having trouble. Couple that with a few dings to their credit bureau, and the problem compounds.
Almost all consumer loan underwriting these days is driving solely by credit scores. And the dings hurt quicker than ever before, as lenders tighten standards.
We have to return to judging the consumer’s ability to repay, and not look at them as a number that is assigned to them as if by Ouija board.
I think it would be pretty easy to get a constitutional amendment passed to ban any future meet-ups of you guys.
I never thought I’d see Peach Pundit devolve the way it has.
I can go to Tondee’s Tavern or HuffingtonPost and find more support for small-government.
While you’re there, tell SpaceyG we said hi.
Things are starting to sound like the old Partisan political death spiral.
Saxby got his wake-up call. Maybe he will listen. If he continues to vote as he has in the last few years, I am and must remain hopeful our GOP leaders will find somebody to run against him on the socially moderate, fiscally conservative platform. D’ya hear me?
On the philosophical level, often government solutions have an uncanny knack of causing more problems than they originally were intended to resolve. That much CAN be true, but we can also guard against ‘blowback’ and unforeseen consequences.
The issues we face now are too big to rely on free-markets to resolve, that much is evident. The initial TARP traunche is safely tucked in the vaults… We need to repeal Glass Steagall de-regulation. We ought to dismantle much of Sarbannes- Oxley.
So politics notwithstanding, don’t be the last one to turn out the lights on America supporting a viewpoints such as:
Doing nothing is better than having gov’t do something,
The issues we face are solely of GOP’s making, since both Parties are culpable.
Jace, I agree with some of your views, gov’t actions need to have Sunset provisions, limitations, and safeguards. But we can ill afford to sit on our collective hands waiting for the banking industry to decide when to lend again. Or let our auto industry tank.
Now is not the time to follow the herd, be fearless and creative, these are the times that shall forge new market dynamics and the fortunes of tomorrow. Believe it!
PS And when the barbarians test us, and they will, our resolve must be immediate and strong.
“Now is not the time to follow the herd, be fearless and creative, these are the times that shall forge new market dynamics and the fortunes of tomorrow. Believe it!”
You need an “out of the box” in there for the consultant MBA trifecta.
Jace
I agree 100%! Is there some type of infection going around? Looks like Everybody’s lining up for the government meal ticket, and jumping in on the “winning side”. OMG. Not even a token gesture or some conservative outrage here! These planners and politicians from DC got us into this stinking mess.
“Insanity is doing the same thing over and over and expecting different results.”
-Albert Einstein
Or at least a good “paradigm shift”,
But I love the tone, spirit, and resolve. Good post.
“Here ya go Barack. It’s my stimulus plan.”
“No way man. Get outta here. My plan’s better”
“No hell no. I got the mac daddy plan over here.”
Very well done Mr Icarus! I had wondered when the bailout would trickle down. With Georgia Banks comprising 20% of the collapsed banks in the nation, (so far) I couldn’t help but chuckle at Rep Earhart’s suggestions about State Control of Banking Institutions. If Georgia had control of Financial Institutions, entities like the Facility Group would be puppeting the Bank’s purse strings.
Vic,
Depending on how the bank is chartered, the state may have control of bank regulation in Georgia.
I take his request for assistance as sincere, and as I said in my piece, this isn’t about party or person, and taking shots at former employers isn’t going to help get us to a real solution.
That said, thanks for your support of the plan template. Now let’s see who we can get to back this at the Federal level. Ideally, we need a conservative Republican and a progressive Democrat to co-sponsor. For it to have a chance to succeed, it needs to be truly bi-partisan, and having a blue-dog Democrat sponsor with a centrist/moderate Republican would probably doom it to failure from each party’s reactionary extremes.
So, anyone with the ear of Price or Westmoreland, Lewis or Johnson, you need to be on the phone.
When feeling ‘beset on all sides by the inequities and injustices of others” do we duck and cover or send someone in over the top?
Call it the painful cyst of eternal optimism, but I believe in what a famous Atlanta Falcon says:
“When you look your best, you feel your best, and you play your best. And they pay best.”
If it makes anyone happier this ‘out-of the box’ paradigm shift was brought to you by a crusty economist who refuses to yield to the temptations of giving up all hope.
If our American Experiment is failing, than not on my watch. “Better get busy livin’ or get busy dyin’ ” -Morgan Freeman- Shawshank Redemption.
Jace,
I opposed the bailout, and voted against Saxby because of his support of the bailout (supported him in the runoff because split power is better than one party with super-majorities). I give pretty much all politicians at every level about the lowest grade possible, but it is nonsense to believe that there is no difference between overwelming control by one party versus marginal control by one party. Split government prevents a lot of nonsense from happening due to power struggles.
I would like to point the key concepts behind the plan
1) Unfreeze credit market to responsible people
2) Stimulate the economy with people who played by the rules who will more than likely spend the money responsible
3) Give people a second chance in a responsible manner
4) Eliminate government backed lending programs with no skin in the game and make sure affordable of payment is a key consideration before lending
5) Promote fuel efficient products that will keep inflation in check
6) Help stimulate the auto and housing market in a responsible manner
7) Create a floor for valuations so lenders feel comfortable again
I am not arrogant enough to claim this is the end al of all plans that Icarus and I came up with. And in fact any suggestions are welcomed. But I challenge anyone to show me a better idea than this. And if we keep on the current track it will be a very hard fall.
I realize we have ideologues on both sides who will argue the purity of convictions they truly believe in. As a guy who has made a little money in business, especially in turn-around situations, you learn quickly you must deal with the reality of the hand that was dealt.
All I ask is please put politics, party…behind us and lets focus on a real solutions for the future of this great country.
I think the plan has some very positive aspects. Could you/someone clarify how the manual underwriting process would work? It is my understanding (maybe wrong) that the push towards credit score based underwriting was based upon the idea that the human element would be eliminated. Therefore someone would be less likely to discriminate based upon race, creed, sexual orientation, etc.
Now, obviously the solution was an over correction, but it does bring up the question of how do you not over correct back the other way?
Nick (I can call you that, even though we may not be kin, right?)
It would seem to me that this actually takes racial preference out of the equation entirely. Credit scores are based on credit history, and there are volumes of studies that show various minority groups have lower credit scores based on how they use credit.
I am also aware that, because most auto financing occurs in dealerships via finance companies instead of via regulated banks, that those less sophisticated with how credit works usually end up paying the highest rates among people with the same credit scores.
By the fed setting one rate and one guideline for all consumers, the process is much more uniform, and should thus discriminate less.
Will be glad to try again if that didn’t answer your specific question.
Ok Icarus,
That answers it.
Now on a practical level. Who would put forth such a aplan? Georgia does not seem to have a lot of political capitol in Washington right now!
Do you think any part of this plan could be broken out and tried on the state level?
My kin folks call me Nick
All very good questions and I will do my best to explain the controls in the plan.
The lending market was overheating by a combination of irresponsible lending practices.
First you should not lend money to people who cannot afford the payment. This is fixed by using income to debt ratios with job history over credit history ie credit score. I was taught good people do bad things in tough situations.
Second the reason we put a 10% down requirement is because in a low yield lending deal you want skin in the game. Also we are not promoting interest only or balloon payments just old fashion principle with every payment. The more they own less likely to walk away. We also required a reserve against loses.
Finally the following plan will help the situation but I do warn with this plan it will still be a 3 to 5 years before we work this out. The plan softens the blow, and starts a re-building process on a stable platform.
I hope this helps!
“Do you think any part of this plan could be broken out and tried on the state level?”
No, not really. The state has limits on it’s bonded debt, and adding the amount of overall liabilities, regardless how sound the underlying collateral, isn’t really practical at the state level.
However, Sanford Bishop is fairly close to the incoming Obama administration, and John Lewis can get cameras turned on him nationwide upon request.
On the Republican side, Tom Price is now chair of the House Republican Study Committee, Kingston and Linder are both in House leadership, and Westmoreland and Gingrey have enough conservative bonafides that if they were to back such a plan, you would think it would get more than a mention from Hannity and Rush.
I really think it has to come from both sides of the aisle to have a chance. If one side goes first, partisanship will take over.
My kin folks call me Nick
On a County level I proposed years ago to create a fund that would help with down payments for SBA loans instead of tax abatements.
A tax break does not guarantee investment a loan does. Also the job creation via expansion would create more tax revenue than abatement over time.
Also by using for leverage the State or County guarantees vey little (10%) at the same cost as a tax abatement yet gets 10 times the size via the commitment from the lender and business owner.
Finally if you ask a growing in business if they want working capital or a tax break they will pick capital must times.
This is the KEY! That is why if Tom Price could partner with a Democrat this would have legs. We need both sides to push! Time to put partisan politics behind us, and focus on real solutions.
“I really think it has to come from both sides of the aisle to have a chance. If one side goes first, partisanship will take over”.
My God, where to start???
I almost stopped reading right there, for if this is your thesis paragraph, I already know what the body of the paper says: “Yes, I’m a conservative and all that, and yes, it would be best if we had a free market that adhered to the U.S. Constitution… but let’s be realistic, that’s just idealism, the only thing that will help move us away from the government intervention in the economy that got us into this mess — is even MORE government intervention in the economy! THAT will enable us to lay a foundation to get us back to a market-based, productive economy once again!”
*sigh*
“America’s economy is a credit based, leveraged one.” I have to admit, I almost thought that you were coming around to your senses, and were going to recommend that we actually CHANGE the system that has brought us to this economic abyss, and go with one based on the realities of free markets. I guess I should have stopped reading and gone off thinking happy thoughts about Icarus… but I didn’t. And the next thing I read was: “We can not expect this to change over night and remain an economic super power.” Dang. Oh well. See, here’s the thing: if it DOESN’T change QUICKLY, there’s no WAY we can “remain an economic super power.” With over $80 TRILLION in debt, and billions more being created out of thin air every single day by the Federal Reserve, there is simply NO WAY that the almighty (worthless, unbacked) dollar can POSSIBLY remain as a viable currency on the world market. But hey, don’t worry — when it crashes, as it is destined to do under the current system, no one ELSE will be an economic super power, either! The solution HAS to be to return to a savings-based, metals-backed, constitutionally-limited free market — before it gets MUCH worse, for a MUCH longer time.
“As such, we must return to the lessons learned in the wake of the great depression, which was largely caused by stocks being bought on margin without proper leverage.” Sorry, that’s not what “largely caused” the Great Depression. The depression was essentially caused not by speculation, but by government and central bank interference in the market — just look at the inflationary policies of the Federal Reserve from 1921 to 1929 as evidence. Government manipulation of the money supply sets the stage for the familiar “boom-bust” phases of the modern market; and it was the interventionist policies of the Hoover administration that magnified the duration, breadth, and intensity of the Great Depression.
And I wish that every person who talks about expanding “credit” would call a spade a spade, and use the word DEBT instead, which is what we really mean when we say “credit.” Then the commonly-accepted phrases like “We need to expand credit to save the American economy” would read, “We need to expand DEBT to save the American economy.” Oops, we can’t do that — because then even a sixth-grader (even the ones in government schools) would recognize the idiocy being touted as revealed truth from on high.
As I read on…
“Part #1—Home Refinancing: The federal government shall step outside its constitutional powers and intervene in the economy in ways amazingly similar to what got us into this mess in the first place.” OK, OK, I admit that was a paraphrase, not a literal translation. But, it IS essentially what you went on to say. Welcome to the new (neo?) conservatism, where limited government means “limited to whatever it wants to do, including unconstitutional monetary policies and outrageously ‘implied’ powers.”
“Part #2—New home purchases: The federal government shall…” ditto.
“Part #3—New car loans: The federal government shall…” ditto.
“Part #4…” Seriously, do we even need to go on?
“These proposals should be temporary” AAAHAHAHAHAHAHAHAHAHAHA… wait, you’re serious? AAAHAHAHAHAHAHAHAHAHAHA… that’s even funnier!
“The best way to get America working again is to invest in the American People.” Hmmm, now let me guess… you’re quoting Clinton? Gore? Kerry? Obama? Dang, this is a hard one…
You were so much more enjoyable, Icarus, when you made pithy comments on other people’s irrelevant postings. It’s so sad to see you posting your own now. It’s especially sad when you channel that incredibly well-read economist, John Konop.
And oh, yeah: http://www.youtube.com/watch?v=8PIEGK0IbA4
Taft Republican
I never said I was an economist. I am just a father, husband and businessman who has made a little money in the finical service industry.
I was speaking out against this irrational lending and spending while getting attacked by Republicans, Democrats and the AJC (who referred to me as ‘chicken little” ) years ago.
Now we can sit here and point fingers or solve the problem. The hand that is dealt is not good but we do have a way out.
The truth is the government is backing much of the lending especially the must toxic loans and insurance. Now I cannot wave a magic wound and make it go away. You can spew out what should have happen all day long but guess what the problem does not go away.
What Icarus and I are proposing is what to do via the situation we are in. The question is do you want to part of the solution or do you want to sit around and debate what should have been?
eehrhart wrote: “I agree with your premises 100 % with access to credit being the key to the recovery”. Let’s paraphrase: “I agree with your premises 100 % with EVERYONE GOING INTO DEEPER DEBT being the key to the recovery.” Call in the sixth-graders.
At the root of the current financial crisis is the whole fiat-based, Federal Reserve System-run, fractional reserve banking system that we have allowed to take over our economy. As a start, then, if we really want to solve the problem, ENDING THE FED is “the key to the recovery.” And if you really DO want to put “considerable talent in this area towards a state based solution,” start here:
Here’s the key section: “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts”.
What has our State made a Tender in Payment of Debts? Federal Reserve Notes, which are most assuredly NOT backed by either gold OR silver Coin. So, get a spine, and introduce a bill which uses this constitutional provision to criminalize the use of Federal Reserve Notes as payment to the state. State income taxes, business taxes, sales taxes, agency fees, etc. — maybe even lottery ticket purchases! — all must be paid with gold or silver coins. In the same way, the state could only pay its debts with gold or silver coins as well.
Don’t give me any BS about it being unrealistic. You just asked Icarus to put his scheme into state legislative form — and it’s nowhere NEAR the universe we like to call “reality.” Would it be challenged, with the claim that Federal legal tender laws trump what the Constitution so plainly reads? Of course it would, and under Article III Section 2, it would go directly to the SCOTUS. And get this: the Supreme Court has squarely held that Congress lacks any constitutional power to specify what the States shall use as “legal tender” or media of exchange in the exercise of their reserved sovereign functions. See Lane County v. Oregon, 74 U.S. (7 Wall.) 71 (1869); Hagar v. Reclamation District No. 108, 111 U.S. 701 (1884).
And besides, if we can’t win based on the verbatim wording of the Constitution (as opposed to “implied” powers based on “penumbras” hidden in the “shadows” of it), then what the h-e-double-hockey-sticks do we even HAVE a Constitution for, anyway???
Konop, I’m not sitting around and debating what should have been; but if we don’t learn from history, we’re doomed to repeat it.
And that’s why your plan is nowhere NEAR being “part of the solution” — because it’s already “part of the problem” and only proposes MORE of the same. Either we engage in a fundamental shift in everything I’ve described, or else we’re just shoveling more coal in the fire on this locomotive over the edge of the economic cliff called “government interventionism”.
Taft Republican
What do you think would happen if we implemented your idea?
Who would pay for the FHA, HUD… government backed loans?
Who would pay for the bank run on government backed deposits?
And when the credit markets freeze further than the job markets plummets further what do you think will happen?
I could go further but I am hoping you get it.
You can live on Fantasy Island if you want or you can deal with reality!
Who cares about American innovation, or free enterprise or rewarding the successful? Or the intricacies of life and the economy outside of K-Street, the MSM and DC politicians and assorted power freaks in government? Naw, let’s just throw everybody in the salt mines and let the politicians take over everything. If common sense were baseball then the neocons would be the Bad News Bears.
Taft Republican
If you think the controls in the lending bailout program we proposed are “more of the same” than you do not understand what happen in the financial arena that created the meltdown.
I am not saying that we do not need further reforms ie spending cuts, trade reform…. But the controls are night and day from what we had.
Konop, I feel like I’m talking to a wall.
Seriously, did you read ONE DAGGUM WORD of what I wrote? I can’t even BEGIN to answer your “points,” because even when I can decipher the poor spelling and bad grammar, they STILL don’t make any sense.
Maybe you should go back to trading emails with Icarus, and let him be your mouthpiece on PP?
Here’s something pretty good that would help to re-introduce competition into the marketplace.
http://en.wikipedia.org/wiki/Sherman_Antitrust_Act
GF – yeah, if we’d apply to the banking cartel called the Federal Reserve.
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