Posted on 03/02/2009 3:48:42 PM PST by tobyhill
No salary cap crapola, no strings, no warrants, no huge interest rates, no forced issuance of new equity, no forced conversions at tiny share prices. No confiscations, no nationalizations, no wipeouts. The treasury or Fed should be shoveling money at the problem like there isn't a tomorrow because otherwise there isn't. The treasury will get its share back through ordinary economic growth.
In the meantime cut taxes don't raise them, enforce mortgage terms don't holiday them away. The Fed should lend freely and buy up any paper it expects to remain good regardless of its nature or supposedly quality in third party eyes. Suspend insane mark to market accounting and let banks value anything they please on a realized cash flow basis. Create central exchange clearing for CDS and similar OTC derivatives, say in Chicago at the Merc.
The agencies should buy up every tranche of distressed ABS and reassemble them into whole loans. Triage them and re-sell the ones current and in good standing. Sell the rest for pennies on the dollar to collection agency types and vulture real estate operators, RTC fashion. Eat any resulting loss without blinking an eyelash.
Borrow heavily at these zero rates but extend the time for treasury flexibility. Park it in higher yielding corporate debts, and keep doing it in volume until the spread between them narrows again. Encourage bankers to jump on that bandwagon and "trade ahead" of it, to make it move faster and to give them the bulk of the profits from it, on purpose.
Change all the current populist rules for real estate investment to stop discriminating against high income, high networth, and speculative players. There is no fix for the real estate markets without wealthy people carrying houses from current depressed prices, in hopes of profiting from eventual recovery. Deliberately freezing them out of the market by tax discrimination is mind boggling insanity.
Drop the corporate tax rate to 15 instead of raising taxes on investment income. Leave tax havens and foreign bankers alone, tell all concerned the US is a hospitable place for capital. Build a paradise for usurers and absentee, undeserving, filthy rich bastards who don't even vote for you and have no loyalty. Don't give a damn about any of that populist crap, just bend over backwards to *attract capital* and *make it pay*.
The government gets rich if and only if the populace as a whole is rich, and the populace as a whole will be rich only if they have free access to unlimited quantities of real capital to send their productivity through the roof. They way you do that is to reward capital instead of punishing it.
Reward capital for being successful, reward it for being stupid, reward it for being loyal and helpful, reward it for being flighty. Stop moralizing, stop punishing, stop demanding and confiscating and taxing and griping. Stop pandering to the deadbeats who started the problem and pander instead of the rich who can fix it, any time they please, if they decide it is in their interest to do so because they will actually get richer.
Dirt simple really. Works every time it is tried, too. Which is - practically never!
Don't do any of those things because they are morally demanded or fair or politically expedient. Ignore every arrow you take over it, the purpose of political capital is to absorb brickbats from idiots to enact the policies that work. Instead, just maximize the returns to capital, because those being negative is the *entire* problem, and *nothing* works or helps until it goes positive again.
There’s always a tomorrow, even if aspiring plutocrats have to take an occasional haircut.
It seems to me that even the plutocrats need a tomorrow, so why don’t you cut the hard sell and explain why bad plays need to be bailed out at the expense of those who didn’t make them?
No hard sell involved, it is pure common sense. That just appears to have left the building, because pizza cutting zero sum populism is in charge. Since that is bag of rocks stupid, so are all the policies people consider viable.
It is blindingly obvious that engineering upside for financiers is the way to get through it. Want to squeeze somebody, squeeze a short or a deadbeat, not that either seriously helps very much. No, see, when people think there are utterly undeserved fortunes in the millions lying around in the streets going begging, then and only then does recovery start.
Does “moral hazard” enter into your prescriptions at all? Or should we just give a banker whatever he wants merely because he IS a banker?
Nice epitaph for fiat. Couldn't have said it better myself.
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