Eric Harrington – Bailouts? We don’t need no stinkin’ bank bailouts…
As I watch the talking heads and economists all wring their hands and speculate as to the best way to spend the $825 billion (where they got this number I’ll never know) stimulus package, I must confess, I am completely flummoxed as to why we need to give one penny to the Banks..
Banks already do not loan money they posses. They create money out of thin air up to roughly 9 times the amount they have in assets..It’s called Fractional Banking. The figure of 10% apparently was established pragmatically over hundreds of years dating back to the Gold Smiths, who recognized they only needed 10% of the gold and silver entrusted to them actually be in hand at any time to cover normal withdrawal patterns… So when the banks freeze credit today, they are simply saying that with all the bad debts they hold, their verifiable assets (to which this ratio applies), can’t support creating more loans under current regulations, and they have to dramatically restrict credit.
So why give them money they can spend as they wish? All they have been doing is using that CASH to buy troubled companies and pay dividends and bonuses. The simple solution is to temporarily suspend the fair value accounting standards for financial institutions, to limit bank’s artificial write-downs on the value of their mortgage related securities, for a while. In simple terms, Ignore the Asset to Debt requirements specific to Mortgage holdings. It effectively has the same value as giving them bailout money, but with a primary difference.. They can’t use it to pay executives, or investors, or buy companies, they can only use it to LOAN money to entities outside their company like you and me, and through which they can then generate earnings to pay all those other people. You know, the free market way…
Why am I (I admit, it was the congressman who brought it to my attention), and Oregon Congressman Pete Defazio (Congressman’s DeFazio’s Alternative) the only ones discussing this? It accomplishes all the value of a bailout with a simple stroke of a pen, and none of the potential for abuse, as long as normal regulatory oversight is in place..…
Let’s save our stimulus money for building critical 21st Century Infrastructure, and not just allow the banks to abuse us more than they already have… For more on how to end this crisis and create a more competitive America
Editors Note: Chairman of the Senate Banking Committee Chris Dodd talks about this very approach in an AP Article 02/05 HERE.. Is Senator Dodd reading Conspireality? If so good….
Eric Harrington
angrycowboy
jraeharrington
ravingliberal
andylloyd
No More Bailouts!
Uh oh! We agree! “Mark to market” is a poorly done half-execution of a good idea, post Enron, supposedly to keep companies from leveraging inflated assets. It doesn’t however, need to be elminated. We simply need am optional “plan B valuation”, which would typically be applying a standard (for the asset class) cap rate of cash flow. Companies could choose (and disclose) which valuation method they used, and why. So, if someone had $100 mil of mortgages that were performing as expected, but there just wasn’t a market to sell those mortgages right now, the holder could use a capitalization of the cash flow and book the asset at that value.
Anything but giving them more money they can spend as they choose. Buy opening up the regulations, they can onlyn loan the free money, not buy competitors, or give bonuses…
I’m imrspesed! You’ve managed the almost impossible.