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Stop the Bailout: Four Better Alternatives
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While America’s financial situation is frightening, it can be fixed without mortgaging our grandchildren’s future.
Churchill once remarked that “Americans can be trusted to do the right thing, but only after they had exhausted all the other alternatives.” As we look at the new administration’s actions to get the country out of a deepening recession, the financial markets are judging that we have started on the wrong course.
The facts are stark. America is frighteningly overleveraged, saddled with $54 trillion of debt, or 360 percent of our $15 trillion economy. Americans’ pre-2008 $56 trillion of net worth has dropped $20 trillion in the last six months alone—the greatest loss of wealth in the shortest time in history. US FDIC banks are insolvent and can’t lend. While they recently raised more than $1 trillion, they have $1 trillion to $3 trillion more in pending losses.
Let’s stop propping up values, stop throwing good money after bad businesses, and begin to think outside the Beltway box.
Clearly, a bazooka-like response is necessary. If government spending does not replace the huge drop in consumer consumption, the situation will continue to deteriorate. The question is: Can we stimulate the economy short and long term in a way that ends the financial meltdown but does not mortgage the future of our children and grandchildren?
The answer is yes, but bottom line, we must stimulate through more investment and less consumption. Investments will generate jobs. More consumption will sap our already depleted wealth. A new plan needs a new vocabulary; let this not be a “bailout” of banks, but a “reengineering” of America. Let’s stop propping up values, stop throwing good money after bad businesses, and begin to think outside the Beltway box.
America needs to be restructured. Americans lead the world in consumption. But we are also the world’s largest and best investors, the mortgage debacle notwithstanding. The retooling of America ought to begin with a new vision of what America can become in the 21st century. Such a view ought to embrace the gradual shifting of America from a country that consumes 30 percent of the world GDP to one that becomes the largest saver and investor—say, 1 percent per year, until we reach 6 to 10 percent of income.
The government needs to lead by example and act as the catalyst.
The catalyst for a new plan should be the immediate reform and recapitalization of the banking system—with a clear timeframe. And within that timeframe, net of toxic assets, America needs to be reassured that the US FDIC banks will have the same $1.4 trillion in net worth that they had before the financial meltdown. All banks should not be treated similarly, and the concept of a nationalized banking system should be abandoned. Why should bad banks be allowed to compete unfairly with good banks because they are government-owned and have a lower cost of funding?
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Thank you sir! FINALLY a calm, rational article with SPECIFICS on how to address the economy. Though I suspect the administration is considering these ideas already, just trying to figure out how to enact them.
What a crock of nonsensical doublespeak. The plan above would only benefit the top 5% by artificially preserving equity in bankrupt institutions and protecting gains made through fraudulent practices. "Children and grandchildren" is Republican code for "save my tax shelters," nothing more.
The large money-center banks needs to be busted into smaller units, and that includes the newly chartered banks like the entity formerly known as GoldmanSachs. Banking, insurance, and investment banking need to be totally separated by law. Shareholders in Citi and Bank of America should prepare to lose all equity as these fraud monsters are are busted into smaller pieces. We need to revert to the previous bankruptcy law so that the American economy can start from a clean slate.
Excellent article!
This bailout could be a major opportunity to clear out a lot of lousy banks (and lousy management), while providing space for new talent and new combinations. Consumer banking is already undergoing wide-ranging changes as the banking crisis destroys once-familiar 'high street' brands - why fight it?
Point about bankruptcy is excellent, though we really need a better bankruptcy law. The Kiwis require their banks to have all the necessary records, etc., accessible inside of 48 hours of going into administration - American legislation demands nothing like that level of competence/diligence, which makes bankruptcy for big companies almost impossible to manage well.
On the investment side, this is also a fantastic idea. There's a vast difference between borrowing to cover current commitments and borrowing to fund new development, not least that the latter has a shot at being non-inflationary. A string of thirty new nuclear powerplants, say, would mop up inflation by putting a dent in our trade deficit, funding new industrial output (and lowering the cost of business more generally), while putting us over the top on the infrastructure necessary to sustain a fuel-cell automotive economy, an area where (clearly) there's a lot of money to be made.
I just hope someone's listening!
-it is all for the children
-the children are our future.
-please we must save our children.
-It is not fair that will saddle our children's children with the debt caused by our reckless spending.
-stop the evil "generational shift of debt"; it ain't fair to the kids.
-We must provide national health care to children first because, well...they are our children.
How about this-> I do not have any children, nor plan on creating any children in my lifetime. So why should I support economic policy based solely on my neighbor's yet to be born great-grandchildren. Is our concern for our future generations economic viability a patriotic imperative or a moral one?
Is Mr. Quasha absolute certain of his prescient propositions?
What if he is wrong?
Here is a Hollywood plot line:
-Banks are allowed to fail which causes the entire banking industry to crumble.
-Without a viable monetary system, our economy crumbles.
-Scarcity of resources leads to civil strife
---> The title of my screenplay: Mad Max-Life beyond T-Bills
No, we must not allow this to happen. For god's sake, think of the children.
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It's too late American, you been screwed like it or not, and guess what, it's YOUR fault!
So step up, take responsibility for your own actions!
YOU voted these idiots into office, YOU allowed them no term limits, YOU allowed them to continue on with their own retirement plan, YOU allowed them to continue voting in their own pay raises, YOU re-elected alot of these idiots...
NOW YOU can vote them out of office, take a stand, demand term limits of no more than TWO terms, and WE vote their pay raises, DEMAND they pay into social security, and NO more special retirement funds for them, then they will damn sure guarantee that SS will be around for a few hundred more years!
Boot the one's out who can't or won't perform their job, they become ill, ok no problem RETIRE their ass and get new blood in who can and will do the damn job!
So be responsible and own up to YOUR own mistakes, vote ALL their asses out of office and lets get some fresh blood!
Stop being a bunch of whiney pissey assed babies, you did this you can fix it!
So where is the acceptance of responsibility? Where is the "I'm willing to pay higher taxes to secure our children's future" part of the solution? Small thinking leads to predictably small solutions. "Let the bad banks fail." Seems like some of this brilliant advice was tried at the beginning of this debacle, and see where that got us. Quasha, like the GOP in general, seems pretty cavalier about the economy shedding millions of jobs. Does he have any background in macro economics? Huge job loss means big problems for this Bush economy based almost solely on consumption. Is it not apparent that President Obama is not only working to shore up this ecomony but also on long term investments (such as reforming health care, energy reform, green jobs)?
And by the way, what's wrong with government workers? Don't they consume? Don't they buy homes, cars, and invest in their children's future? How is having more people work in gov't. that can enforce our actual laws and ensure our consumer rights and tax payer protections are carried out a bad thing? Perhaps if we had 10,000 or 20,000 more federal employees and not had to pay lip service to this 40 year anti-gov't Republican obsession we could have avoided this whole mess in the first place. Ah well, live and learn.
Where was all this concern about the financial obligations of our children and grandchildren when George W Bushleague was cutting taxes while starting a war (and outsourcing it, also)?
Thank you.
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