Thursday, October 2, 2008

OK, how we can make the bailout actually work... Needs and Wants

OK, OK, yes, I had some fun with numbers in the previous post. Sorry if I offended anyone.

Except the money people. They deserve to be offended.

But it is true and the Congress is admitting as much: they are bailing out the money people.

But they say it is for a good cause.

What they are proposing is to buy all the bad debt, putting money back in the pockets of the money people and then trusting them to do the right thing!

Good grief. How naive!!

The alligator just ate your first-born. You are now going to toss your second-born into the pond and trust the alligator to do the right thing? Reminds me of the joke about software engineers...

Give me a freaking break.

Oh yeh, and along the way are the inevitable plugins of perks, pork, and earmarks...

Good grief.


OK, enough complaining, how can we make it actually work?

I understand the following:

+ We want (not need) a viable long-term credit market to fund long term customer purchases.

(Please do not use the term "consumer" in my presence. I am not a consumer. A hog is a consumer. I am a customer, who chooses, based on quality of service, where to place my custom. If you are not kind, courteous, fair, and trustworthy then I will not place it with you.)

As customers we want (not need) to buy things like houses, cars, and even boats. Having credit means we can have them sooner than later (um, greed, but we can live with it).

If the credit is not available for these things then many fewer of these things shall be sold, so a whole bunch of people working in these industries may end up out of work, perhaps through no fault of their own. So maybe we should avoid that.

(OTOH, if they are following my previous suggestion of investing in real and durable goods they wouldn't be so bad off. And of course the whole credit system is a pyramid scheme, borrowing from Peter to pay Paul. If we could convert credit to planning then people would have the money to pay cash for such things and the same number of builders and sellers could still be employed at the same levels. Of course that would then put the bank loan departments out of work... But I won't go there tonight.)

+ We also want (not need) a viable short-term credit market to provide liquidity to small businesses who have short term liabilities (payroll, for example) with rather longer term billing cycles. So they need to get the money to pay short-term liabilities until the longer term revenues accrue.

(OTOH, if they were saving and not using credit but rather creating enterprise funds to save up in advance for these easily predictable expenses then they wouldn't need credit. Hmmm. It is sounding more and more like this is a bailout for bank loan departments! But I won't go there tonight either.)

+ What we DO need (not want) is a safe place (other than under the mattress) for people to put their hard-earned money until they are ready to spend it on the preceding wants. But, with the FDIC and some controls, we may already have that.

+ What we NEITHER need NOR want is yet another license for the same money people to eat our lunch, again.

So what is to be done?


Before I answer that, let me put in a plug for frugality: the people of Netherlands are notoriously (and wonderfully) frugal. They also run the industrial world.

(If you doubt that then start looking closely at all the major players in all the markets: Shell, Phillips, shipping companies, freight companies, industrial machinery companies, van this and van that... Of course, they are actually building stuff, not just inventing pyramid schemes...)

We are starting to see that here as well. What happens there and with enterprise funds here is that you allocate money on a regular basis to targeted savings funds to prepare in advance for fully expectable expenses, like rent, electricity, and (duh) payroll. And you do not use or allow credit for such things. Period, full stop. No cashee, no purchasee. Even for food.

In short, these practices demonstrate restraint, foresight, planning, and, of course, personal discipline and responsibility.

How quaint.

Of course, that is foreign to our normal yahoo cowboy mentality and political correctness so cannot be foisted on the populace. It needs to be learned (since we seem to have forgotten it) and we haven't time for that right now.

But it does work, wonderfully.


OK, so here is what the Congress can do in the short term to 1) provide the short- and long-term credit markets we want and at the same time 2) prevent paying money back to the same yahoos who squandered our future with stupid and dangerous investments and are laughing all the way to their bank in the Turks and Caicos:

1. Establish a set of credit guidelines on how much money can be lent for how long at what rate for a person with how much income. This is a number cruncher's dream and ultimately doable. I remember my father reciting guidelines for how much house you could buy with a 25 year mortgage if you made $12,000 a year. That sort of thing. Give me a couple of hours of Googling and I'll bet I'll come up with a pretty good list.

2. Tell every bank in the world that has FDIC protection that they must adhere to those guidelines if they don't want to lose their FDIC protection. Make it effective immediately.

3. Revise Fannie/Freddie and all their cousins to start making short- and long-term loans to the public following those guidelines. In other words, start up a public sector honest broker competitor to commercial banks. That will get the money people up on their toes.

4. If that is too hard, then invest in the zillions of Federal Credit Unions and Federal Savings Banks, either with direct investment or higher insurance coverage and lower taxes, to have them provide the short- and long-term credit. Firms like Navy Federal Credit Union - or USAA Federal Savings Bank - These organizations are, by charter, customer-oriented and -controlled and essentially non-profit organizations; they have Federal regulations and rulesets that require that excess profit is returned to the account holders, the shareholders, who regularly vote on by-laws and board member selections. They are responsive, responsible, and highly functional.

And non-predatory.

5. Now it gets harder, but we also need (not just want) some form of personal accountability for irresponsible speculation and exploitation. I'll think on this and let you know.

Vengeance is mine, sayeth the Lord, but it does feel good when you get a chunk of it yourself. Cutting off their ears or other body parts prolly won't pass muster with UN human rights commissions, but it would feel good.

In the meantime, measures such as the previous four will meet the needs (and wants) and avoid paying money to the perpetrators of the crisis by buying bad debts.


How far can 700 BILLION go? A very very long way, if it is spent carefully, responsibly, prudently, and conservatively.

And not simply turned over to the same dude that just did you.

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