Economic Rescue for the Next America: Saving the Victims Not the Robber Barons

Sorry to say so when your down, but I told you so. More than a year ago I warned in writing that we were about to enter the most ravaging economic jolt in our lifetimes. We are all the victims of what analyst Chuck Collins, writing in the Nation Magazine, has succinctly called the “Casino Economy of Get Rich Quick.”

Bubbles always burst. Dotcoms did. Housing did. Even the next bubble, the Green Bubble, will inevitably burst. Bubbles are born of irrational exuberance. Big fads are follies. They leave those late to the game in a world of hurt.

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Comments

[Don Holbrook]

I read two articles today in the New York Times which gave me some thoughts. The first was by Tom Friedman on the rescure of the auto industry. I of course have sentimental attachment to that industry. My Dad worked for GM for 44 years and is very proud of that. I also grew up in Dayton Ohio, which used to have 10 GM plants and now will have none left.

I think if the government is to step in it must be under very strict conditions... no free money do as you want blank checks. Here would be my proposed conditions:

First, GM Stockholders dividends would be suspended, the board of directors would be removed and replaced, no bonuses for management or stock options until the new goals are attained, all vehicles must be converted to new hybrid electric/gasoline formats and the fleet fuel averages has to be brought up to above 30 miles per gallon. The Government must be paid back with interest before bonuses and dividends can be restored and would act as a preferred stock holder in the event of liquidation.

I also agree with Friedman that all union and other vendor contracts would be voided and the business models adjusted to the necessary conditions to make this plan work for GM.

The last point was on the decision of Treasury to finally prop up the consumers instead of just creating another cash ponzi scheme for banks and credit card companies to gorge on. The real deal on restoring consumer confidence is to right size the mortgage situation and it will be painful. Congress should allow or compel compliance that mortgages should be adjusted down to the current real market value and allow consumer to refinance their primary home at that level and for a very favorable interest rate say 3 percent for 15 years. Then for those that want to go out 30 years it would be a fixed rate of 6 percent. If the homeowner (only those in foreclosure can qualify) cannot afford one of those plans then the foreclosure continues. Banks would then be compensated for the right off to get the mortgage in line with market values and mortgage payers capabilities. Lastly, the use of homes as credit cards has to be discontinued, this was at it's inception based on predatory lending and it created this house of cards. Homeowners must have a 20% down payment for homes and they can only take out second mortgages to that level and specifically for home repairs, energy efficiency improvements, education (although they shouldn't have to for that) and healthcare emergencies (another one that we shouldn't have to do if we had a real comprehensive affordable healthcare plan for working folks). Nothing else no refinancing for lifestyle purchases and such. No tax deductions for second mortgage interest either. Only credit for energy efficiency improvements. We have to get serious about energy and our finances in this country and these fixes would go along ways to do that.