I have a plan

From an academic standpoint, this is a very novel time in economic theory. It looks like the traditional schools of thought are not well equipped to come up with coherent responses. The debates taking place are not just interventionist vs laissez-faire, or Chicago vs Austrian schools of thought, but some bizarre combination of everything.

Some people want to plug the hole in the dyke while we figure out if we can fix it more permanently. Others want to let the hole relieve the pressure on the dyke, while we decide what caused the hole in the first place. Still others want to first decide who made the hole, before figuring out if it is worth paying to plug it. There may even be some who want to outsource the whole operation, and see if we can't find a good chinese patch for the hole while waiting for the Arab 'engineers' to come and shore up the entire dyke.

And then there is the Main Street vs Wall Street debate. I am not sure if we even have a good definition of Main Street and Wall Street.

Does Main Street mean people who are not rich, such that they make less than $5 million, or people who are not rich, such that they make less than $250k? Does Main Street refer only to primary residences, or do people foreclosing on their 3rd home also count?

And what about Wall Street? There are only a limited number of true Wall Street institutions left - but do we regard all the publicly traded companies as "Wall Street"? Because they are owned, in part, by the residents of Main Street. Does Wall Street refer only to the financial big dogs, or does every mutual fund, insurance company, credit union and small town bank also count?

I think some basic clarification on these points would help immensely in crafting whatever plan is put forward.

But, in case the members of congress are too busy arguing over terminology, I have a plan:

Given
● both residential and commercial real estate in the United States has been through an extended period of unusually buoyant prices
● regulatory oversight of lending practices in the United States has been extremely lax
● financial companies around the world have taken advantage of lack of Government oversight to exploit a situation of information asymmetry inherent in the real estate market since time-immemorial
● no one likes to lose money, but people like to lose their homes even less
● the Government is not an efficient mechanism for dealing with market failures
● any large scale, hastily designed Federal program will be prone to fraud and exploitation by the morally corrupt

Be it resolved that
● Congress, voters and stock holders need to acknowledge that many different actions are required to set the ship on course again
● We may have had too much of a good thing
● giving people cake when they don't have bread didn't work for Marie Antoinette, and it will not work for George Bush and Henry Paulson
● people are going to lose money, but no one should lose their shirt

Be it further resolved that
● Bankruptcy judges should be permitted to modify the terms of a mortgage or write down the value of a loan for primary residences not yet foreclosed
● Extraordinary effort should be made by financial institutions owning bundled mortgages to identify each and every physical property owned to minimize fraud and demand accountability for asset ownership
● Government assistance in the form of assuming asset ownership should be offered at a rate below the face value of the asset so that financial institutions also assume a burden for their poor judgement, and Government assistance should only be offered when the physical properties can be identified
● the physical properties transferred to Government ownership must be made available for immediate sale to any buyer willing to purchase the property at a price that ensures a net profit to the Government, taking into account the cost to the taxpayers of creating new Government programs as well as the costs associated with the increased budget deficit due to the initial assumption of the asset
● an immediate and transparent system between the Government "real estate office" and Government mortgage lenders Fannie Mae and Freddie Mac must be established so that credit can be extended to credit worthy buyers of newly acquired Government property
● State and Federal Government agencies should be given the option of purchasing newly acquired government property for their various programs and office space needs, or leasing newly acquired government property for office space needs at a fair value
● specifications of all property owned by the Government "real estate office" should be made freely available on the internet
● Government assistance should be offered to all institutions, large and small, on the same terms or at the same point in their financial insolvency, such that larger institutions with a large number of vocal stock holders are not at an advantage over community banks and real estate developers

It's your money too

It is a sad state of affairs when "We the people" feel that our questions, recriminations, hesitancies and outrages are nothing more than rhetorical opinion. When our portfolios and retirement accounts, our mortgages and mutual funds are no longer regarded as assets and liabilities belonging to households, but as third tier derivatives, credit-default swaps and other financial ballyhoo, surely it is not unexpected that the average joe should feel cheated.

It is obvious that in our global age of interconnectedness, financial systems around the world are also interconnected. That the epicenter of these financial systems remains Wall Street after 150 years does not necessarily mean that Americans are the only ones who have something to lose should the old boys' network of institutions collapse. Not only are simple securities purchased by individuals all over the world, many nations have substantial stakes in these institutions - either through equity positions, or because if the institutions fail, the buyers of their national bonds also disappear.

The last six months of the Bush presidency have seen a series of unprecedented maneuvers in the financial sector. My age precludes me from a clear memory of the S&L crisis, but this crisis, also precipitated by a republican drive to deregulation, did not result in such a stratified beneficiary pool. Today, we see that the inhabitants of "main street", as you and I have been called by the presidential candidates, are mentioned as lip-service, but nothing more. The result of too many years of lobbyest control over Capitol Hill is that the immediate fate of the large banks and insurers takes precedent over the long term reality that such a large increase in our national deficit will bring. Ours is a reactionary government, passing the Sarbanes-Oxley act after Enron collapsed, and now likely passing a bill to "regulate" the financial industry that pressed for deregulation through 3 recent Republican presidencies. A financial bailout by the US government, purchasing the bad debt that the banks and other institutions failed to do their due diligence upon, will saddle US taxpayers with greater economic hardship. More money will have to be borrowed from abroad, and another slippery slope gets greased.

The bottom line is this: Americans are not the only ones suffering under the grossly shortsighted and profit grubbing decisions of mortgage companies, banks, and the people who sit around thinking of ways to get around federal financial regulations. So why are Americans the only ones paying for the bailout?

Evidence of CHANGE, pt. 2

The word from Wasilla, AK, care of the NYT:

She said she’s never voted, and was a teenage mom “like Bristol.” She likes Sarah because she’s “down home” but said Obama “gives me the creeps. Nothing to do with the fact that he’s black. He just seems snotty, and he looks weaselly.”

Why do our leaders need to be "down home"? Why do our leaders need to be just like you and me? I do not want to relate to my leaders? I want them to be much more intelligent, ethical and moral than I am. And if I can't get all of that, I certainly want them to be better educated that the average voter.

McCain: Bachelors degree from the USNA. Class rank: 894/899
Palin: Bachelors degree from University of Idaho, passing through 4 other colleges on her way.

Obama:Bachelors degree from Columbia University, with 1 stop along the way
JD from Harvard University, Magna Cum Laude
Biden: Bachelors degree from University of Delaware. Class rank: 506/688
JD from Syracuse University. Class rank: 76/85

Personally, I've had it with leadership of questionable intelligence. Haven't you?

ps:


And...weaselly? It is better than Bush who has very simian like qualities, and McCain who kind of looks like a bull-frog.

Evidence of CHANGE pt 1

According to my calculations, the change that has occurred in the last month involves the US taxpayers taking on an additional $5,085,000,000,000 in debt, due to poor decisions made by a select few in order to extend the idea of the American Dream to many millions more Americans. However, I know that the American Dream did not involve massive foreclosures, duping of well-meaning families who don't understand the basis of a variable rate mortage and extending loans to people who don't have the means to repay them.

So now, according to these same highly technical calcuations, each US taxpayer is now an additional $49,977 in debt.

You know what. That sucks!

I am confused - is the GOP changing their very principles? Free market? Low government interference? Low debt? Balanced budget? Because, I know that not even "new math" can make it so that lower taxes can help erase the debt. Which either means higher taxes for all, or higher taxes for some.

Do you remember, 3 years ago, when all we saw on every tv station and newspaper was the continuing evidence of destruction in New Orleans? How come, when there appears to be quite severe destruction in Texas, we are not seeing pictures of it? I don't have a good explanation, except to note that during Katrina, the governor of LA was a democrat, and now, after Ike, the governor of Texas is a republican. Coincidence?

The folly of the GOP

"Drill baby drill"

"If we lost the war in Iraq, who won? Al Qaeda? Bin Laden?"

Why do the Republicans believe that chanting USA makes them more American? Why do they believe that chanting "Drill baby drill" is the answer to our energy crisis. Since when did we decide, and confirm, that Al Qaeda and Bin Laden had anything to do with the reason we went to war in Iraq?

How is Sarah Palin the most popular governor in America, when she governs a state with fewer people than New York City, or Los Angeles, or Chicago, or Houston, or Philadelphia, or Phoenix, or San Antonio, or San Diego, or Dallas, or San Jose, or Detroit, or Indianapolis, or Jacksonville, or San Francisco, or Columbus, or Austin?

Let us reflect. Sarah Palin was mayor of a town of 6000. She believes that the Alaskan Strategic Petroleum Reserve should be tapped for our energy needs, when Alaskans themselves, with all of their wind and water resources, are not energy independent. She thinks that women, even in the cases of rape and incest, should not be given the option of choosing whether or not to have a baby. She thinks that sex education isn't important. Abstinence only, she teaches. Ah - it seems to have worked well within her family. She believes that creationism and intelligent design deserve a place in the science curricula of the schools.

Oh - and can we turn to the names of her children? Track. Bristol. Piper. Willow. Trig.
Is she on crack? Is that what they taught during her renowned educational pathway to the governorship? Hawaii Pacific College, North Idaho College and the University of Idaho?

Did she just say, on national television, that her husband is quite a package? Did she just compare herself to a pitbull?

Sarah Palin is against tax increases. In fact, in her large and prosperous state, she reduced taxes. But then, they receive federal subsidies and oil revenues. So, really, she was governor of a frozen Dubai.