"An era can be said to end when its basic illusions are exhausted." - Arthur Miller

Wednesday, September 24, 2008

The Bailout

Currently the policy makers are working on a $700 Billion dollar payout to help AIG and Wall Street get out of the mess they buried themselves in. The problems being discussed is not should Congress bail them out but how. Ironic considering the Republicans have spent the entire time claiming that letting the market do its thing is the solution to all problems.

Sadly it appears the lesson still hasn't been learned. Republicans, especially Bush, are pushing for a blank check approach. Give the Secretary of the Treasury the power to do whatever he wants and worry about checks and balances later. The Democrats want all kinds of checks, probably many that are not even necessary. In the middle is the lobbyist, all making sure that their companies getting the piece of the pie.

Regardless of how this falls out, it seems once again the average American will be left out. Democrats are making noises to make sure a bail out includes us but more then likely that will left out. Sadly by the time the pork is doled out the average American will just be stuck with the bill.

On the off chance that doesn't occur, there are a few things I think the bailout must have. The most important is the re-instate usury laws and then take them to a new level in the form in interest rate caps. Part of the reason we are in this mess is banks, in an effort to make up for shortfalls, kept increasing interests rates, this in turn cause more people not be able to make payments, led to more foreclosures, which lead to higher interest rates, which lead to...well you get the idea. All interests’ rates regardless of for a home, a car, a credit card, whatever, should have a cap. That cap can vary on scale and type of loan but it should have a ceiling that is point above prime. Say a home loan can only be 5 points above prime, a car loan 8 points, and a credit card 4 points. I think the net result would be to decrease the credit burden for everyone, increase confidence in the financial system and give banks and others a real chance of getting some of their money back. Right now the proposal seems to be an all or none proposition.

The second thing a bailout should include is the end of golden parachutes and ridiculous bonuses. CEO, board of directors and the like should be held to the same standards they hold their employees to with bonuses and the like on the same scale. If they give their people a 10% bonus at the end of the year, then that’s all they get. If the cap rises to 3% a year, then that's their cap. This idea includes failure to perform. You get fired, you get the same severance package of any fired employee (say two weeks, a month, whatever). Uniform application of company payroll polices should be enforced regardless of title.

A third aspect should include some path to help the average homeowner get out of the credit trench they are in. The cap of the interest rate is one method but now it should include a method to decrease monthly payments for a period of time or a bailout of accumulated interest leaving on the principle. Exactly what I don't know but it needs to give people the chances that want to keep their homes a realistic opportunity to do so.

A final aspect is some form of checks and balances. In short, regulation to prevent this type of rampant irresponsible behavior from continuing. Bring in the economists, determine what "broke" the system and close the loopholes. No more, no less. No new oversight committee is needed. No complicated form of auditing. Between a credit cap and closing of opportunities of abuse that was used to reach this point.

Anything that doesn't fall in those categories should be dismissed as not helping solved the problem. Any attempt at pork barrel politics should be dismissed. Lobbyists, their calls, their emails, and so forth should be not allowed and kept away from the Capital building for the duration of this crisis. Sadly instead of trying any or all of the above we will probably get a bill that hand over a ton of money to the very same people that pushed us over the edge to begin with.

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