[Dialogue] [Oe List ...] Is this possibile? A.M.Noel

Sat Sep 20 17:49:26 EDT 2008

From: oe-bounces at wedgeblade.net [mailto:oe-bounces at wedgeblade.net] On Behalf
Of George Holcombe
Sent: Saturday, September 20, 2008 11:53 AM
To: Order Ecumenical Community
Cc: dialogue at wedgeblade.net
Subject: Re: [Oe List ...] Is this possibile? A.M.Noel

Can anyone find anything in this bail-out that attempts to identify those
who created this situation, or the practices beyond short selling, and have
announced any penalties or future penalties, or outlawing any practices in
the boardroom, the arrangement of "cronyism" among boards, which allow
stupid practices and rewards failure?  Anything that strengthens the hand of
stockholders, the government, or any regulartory agencies, anything that
addresses the meltdown in economies outside the U.S., especially the
agriculture sector in 3rd World countries, anything that addresses the
issues of increased poverty here and abroad brought on by these
"irregularities."  The issue of irresponsibility seems to be hidden in the
details for me; is it that the idea of morality is limited to  the no's-no's
of religious culture? 

George Holcombe
14900 Yellowleaf Tr.
Austin, TX 78728
Home: 512/252-2756
Mobile 512/294-5952
geowanda at earthlink.net
----------------------------
I can't answer all your many questions.  But here are some suggestions.

The best books concerning the history and causes of our debt crises are the
following, especially the one by Kevin Phillips who was interviewed by Bill
Moyer last night: 

Kevin Phillips, 2008, Bad Money, Reckless Finance, Failed Politics and the
Global Crisis of American Capitalism. 

Charles R. Morris, 2008, The Trillion Dollar Meltdown, Easy Money, High
Rollers, and the Great Credit Crash

Paul Muolo and Mathew Padilla, 2008, Chain of Blame, How Wall Street Caused
the Mortgage and Credit Crisis

My simplified brief commentary appears in our August 22nd newsletter:
http://www.pugetsoundliberals.org/newsletter/Newsletter080822136.htm#Debt

The following are my brief commentaries (prepared for next week's
newsletter) on how we must react to our financial crisis and more:

Our Financial System's Problems and Solutions

Our national financial system is very complex.  As is it's problems and
likely solutions.  I only understand it's broad outlines.  We have changed
from an 'earn and invest' to a 'borrow and consume (and speculate)'
financial system.  We need to change back.  We need to Reclaim our American
Dream in which our physical and social infrastructure and financial reward
system enable us to enjoy the fruits of our labor and enable future
generations to produce even more fruitfully.  

Notice the distinction between investing to effectively and efficiently
produce or distribute products and services and speculating in gold, art,
real estate, derivatives, etc. to reap benefits that I haven't earned, often
at the expense of people who have earned them.  Notice also that we need
both individual investment in enterprises and collective investment in
infrastructure to enable individual investment to pay off.  We need to
reward investment.  We need to restrict speculation, especially when it
leads to infectious greed and bubbles, which produce the wrong things and
then collapse. 

The major obstacle is our addiction to consuming and speculating and
borrowing to do so.  And denial that we have become so addicted to such a
destructive system.  The major strategies must be to understand the need for
and make and encourage both collective and individual investment.  And to
regulate (restrict and punish) speculation and borrowing for speculation.
We need to regulate individual, organizational and market behaviors.  

Different activities, types of organizations and markets require different
regulation.  Cab driving and farming tend toward over-competition.
Utilities, some manufacturing and some retail trade tend toward
under-competition.  Some activities require more regulation to produce
transparency and prevent fraud than do others.  Some activities (home
buying, stock buying, securities buying, etc.) require more margin
requirements than others to prevent excessively leveraged speculation.
Various fraudulent activities must be prohibited, policed and punished.
Individuals and organizations must be forced to stop or mitigate their
externalities (imposing costs on our environment, communities, consumers,
workers and owners).

Even after trying to simply describe our financial system, its problems and
solutions, it still seems complicated.  And it quickly gets more complicated
as we attempt more detailed descriptions.  I believe the solutions expressed
below are correct, but the devil is in the details of specifying and
applying them to the various markets, organizations and individuals. 

Restoring Credit Is Immediately Necessary

Credit is necessary for investment and purchase of expensive durable
consumption items.  We especially need investment capital for creating the
jobs described below.  We also need to provide capital for durable consumer
purchases by those who can afford them.  Especially houses.  Without credit,
our economy will suffer a great depression.

An increasing number of our financial companies are failing.  Highly
leveraged and burdened with securities which contain unknown mixtures of
non-performing and non-performing housing loans, they are unable to borrow
or sell their loans.  As some fail, their creditors are also threatened.
Failure of large financial companies threatens widespread failures.  Our
present financial agencies have greatly restricted their provision of
credit.  Inhibiting both the provision of unqualified loans (which is good)
and of qualified ones necessary to maintaining our economy (which is bad).  

On a case by case basis, our government has already committed $800 billion
to bailing out failing financial companies.  But half of our non-performing
securities have not yet been accounted for.  With no action to protect the
financial companies that hold them, they will surface over the next year to
continually threaten our credit and economy.  Finally getting it, our
government is now considering committing another $1 trillion.  $1 billion is
$3.30 per U.S. person.  $1 trillion is $3,300 per U.S. person, $6,600 for a
two person household, $13,200 for a four person household.
<http://seattlepi.nwsource.com/business/379914_meltdown20.html> For more.
<http://seattletimes.nwsource.com/html/businesstechnology/2008179759_apfinan
cialmeltdown.html> For more.

We Must Bail Out Large Failing Companies

The cost to our economy of doing nothing to restore credit would cost us
more than $3,300 per person, in lost jobs, lost innovation, lost savings and
more.  Either way, we are paying an enormous price for the deregulation
ethos and corrupt self interested lobbying by financial companies that has
infected both Republicans and Democrats.  Hopefully, we will finally end
these misconceptions and abuses to prevent future bubbles.

Immediately, our government must establish an agency or agencies similar to
the  <http://en.wikipedia.org/wiki/Resolution_Trust_Corporation> Resolution
Trust Corporation which in the late 1980s acquired and later sold assets of
the failing Savings and Loan Companies at a cost of $125 billion ($200
billion in today's money).  This agency should:

.       Acquire securities (without rewarding shareholders and managers) of
failing financial companies

.       Identify and separate non-performing and performing loans within the
securities

.       Acquire and resell houses which were purchased by non-qualified
buyers, insuring that some of these houses (especially near jobs) remain
affordable to workers and others

.       Change the unmanageable terms of loans which were made to qualified
buyers, so that they can continue to service them and keep their homes.

.       Sell performing loans to financial companies, as market conditions
improve their value

Ameliorating the Decline of Housing Prices

Housing prices are too high.  They must still decline perhaps 25% to reach
historic levels compared to our incomes.  Delaying this decline will result
in continued problems, similar to what Japan has been experiencing.  But as
housing prices decline, many owners (who have purchased with little down
payment, or who have refinanced to reduce their equity) will find that their
house is worth less than their mortgage.  

When such owners decide to sell these homes or walk away from them, a
government agency (perhaps through providing capital to local government or
non-profit agencies) should purchase them and resell or rent them as
permanently affordable housing.  This should not reward lending agencies
which made loans leaving the house owner with insufficient equity.  Nor
should it reward home owners who entered into such loans.  It should prevent
the presence of vacant foreclosed houses, which destroy both the houses and
their neighborhoods.  It should make homes available for sale to or rent by
moderate and lower income persons.

We Must Prevent Future Bubbles

Unregulated activities by individuals, organizations or markets, inevitably
lead to abuses.  That is why we have contract law and other regulations.  We
must create and implement appropriate regulations specific to various
activities, individuals organizations or markets.  For more detail, see
<outbind://48/#Stopping> Stopping Fraud and  <outbind://48/#Restricting>
Restricting Speculation below.

Our Most Important Task Is Creating Needed Jobs

We want people to be able to earn instead of borrow.  We must create jobs,
consisting of producing goods and services that we need.  These include:

.       Maintaining and improving our physical and social infrastructure.  

.       Conserving energy and other resources, which we presently waste.  

.       Creating alternative energies, which uses sustainable resources and
doesn't produce pollution.  It should not produce greenhouse gases which
produce global warming pollution.  

.       Creating and implementing new technologies relevant to our health,
education, housing and other needs.  

.       Preserving and improving our social safety net and improving our
human resources.  Universal access to quality health care.  Universal access
to quality education.
<http://www.usatoday.com/news/education/2008-09-18-aid-overhaul_N.htm> For
more.

.       Create concentrated housing, especially affordable housing near
jobs.  To reduce the damage to our environment.  To reduce the cost of
providing utilities.  To reduce the amount of commuting, fuel consumption,
congestion and polluting.  To increase the time that people have to spend
with their families, civic activities and other interests.

Their workers must be able to earn in proportion to the value of what they
produce.  We must increase the wages of workers (in existing  and new
productive jobs) enough that they earn in proportion to what they produce.
We need to 

.       Realistically increase our
<http://chronicle.uchicago.edu/950511/poverty.shtml> definition of poverty
<http://hss.fullerton.edu/sociology/orleans/povertydef.htm> For more.
<http://www.census.gov/hhes/www/poverty/poverty.html> For more.
<http://www.census.gov/hhes/www/poverty/definitions.html> For more.
<http://aspe.hhs.gov/poverty/contacts.shtml#research> For more.

.       Increase our  <http://www.epi.org/content.cfm/issueguides_minwage>
minimum wage and  <http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit>
earned income tax credits

.       Stimulate unionization, including passage of the
<http://www.americanrightsatwork.org/employee-free-choice-act/home/?gclid=CP
j3nbTa6pUCFQykagod7WVBfA> Employee Free Choice Act and strengthening and
enforcing laws which prevent employers from punishing workers who attempt to
form unions

.       Increase the wages of our teachers, social workers and caretakers,
to encourage people to become qualified, take and keep such jobs.

The government can obtain the capital for creating these jobs and other
reforms by 

.       Restoring fair tax rates to high income earners and our wealthy

.       Eliminating subsidies for special interests that don't benefit our
common welfare

.       Eliminating unbeneficial expenditures, including military industrial
expenditures that don't contribute to our national security

.       Increasing taxes to provide everyone access to quality health and
education, while saving individuals and companies money now paid to private
insurance companies and pharmaceuticals.

.       Improving and enforcing our laws against tax payer and other fraud.

<http://www.ourfuture.org/blog-entry/2008093819/tax-speculators-fair-plan-fu
nd-recovery> For more.  Notice how quickly our government can find money to
restore credit, especially if it helps our wealthy and powerful.  But how
difficult it is to find much less money to provide the types of needed jobs
described  <outbind://48/#Our> above.

Stopping Fraud

We need to enact and impose sufficient penalties on people who commit fraud.
Including real estate, stock and other sales people.  Bank employees who
approve loan applications.  Appraisers.  Rating agencies with interests that
tempt them to rate stocks and financial companies too favorably.  Rating
agencies must be strictly at arms length from the stocks and companies that
they rate.

We need to mandate transparency for financial transactions.  We should
forbid the securitization of any loans which disguise their risks.  Leave it
to investors to choose the mix of less or more risky securities that they
purchase.  This includes derivatives.

Restricting Speculation

We need to reduce highly leveraged speculation, by imposing margin
requirements.  Home buyers should pay perhaps 20% of the purchase price with
saved money.  Stock buyers might be required to borrow no more than 50%.
Similar limits might be placed upon other purchasers of financial
instruments, by individuals or financial companies.  The more volatile the
price of the items being purchased, the higher the margin requirements
should be.  

The housing bubble resulted in part because people borrowed a high
percentage of the purchase price with the assumption that the value of the
house would increase.  People bought houses speculating that increased
values would yield them a profit.  People also refinanced their homes to
obtain money for consumption or speculation.  When housing values declined,
they no longer had equity, nor the motivation to keep their house, leading
to additional declines in housing values and the collapse of home
construction.  Margin (larger down payments and restrictive refinancing
limits) requirements would have inhibited the creation and later collapse of
the bubble.
<http://www.tnr.com/politics/story.html?id=d6a0064b-8ec7-4088-9981-989d7773a
6be> For more.

Producing and Ameliorating Employment Shifts

Our financial sector has increased from 10% to 25% of our economy.  We need
to greatly reduce the number of people who are creating and monitoring loans
and otherwise assisting speculative activities.  This means that many people
will have to change jobs.  To assist these people, we should:

.       increase the duration and size of our unemployment payments.  And
reemployment counseling.

.       Provide life-long access to health care, child care and education,
independent from employment.

.       Increase training and wages for the jobs described
<outbind://48/#Our> above.  

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