Just when will the brain trust in Washington, D.C. realize that it has to insure the creditors of the nation’s National Banks? Just when will the brain trust realize that it has no choice but to lift Financial Accounting Standards Board (FASB) “Mark to Market” rules or at least modify them? Due to the inability to properly Mark to Market mortgage portfolios, the banks simply do not have sufficient capitalization to lend – the ratios are GONE. The piecemeal fix chosen by Treasury Secretary Paulson and our Administration is rapidly bringing this country’s economy to a standstill. Every day a new and different piece to the “secret” plan appears – is there no single master plan that can be published?
Former Head of the FDIC, William Isaac, has said “…One alternative is a “net worth certificate” program along the lines of what Congress enacted in the 1980s for the savings and loan industry. It was a big success and could work in the current climate. The FDIC resolved a $100 billion insolvency in the savings banks for a total cost of less than $2 billion. The net worth certificate program was designed to shore up the capital of weak banks to give them more time to resolve their problems. The program involved no subsidy and no cash outlay. The FDIC purchased net worth certificates (subordinated debentures, a commonly used form of capital in banks) in troubled banks that the agency determined could be viable if they were given more time. Banks entering the program had to agree to strict supervision from the FDIC, including oversight of compensation of top executives and removal of poor management…” Read the entire article A Better Way To Aid Banks by William Isaac at The Washington Post.
Unless and until the banks can lend again to both consumers and businesses, we will continue to experience a deflationary economy, one that is essentially closed for business. The ripple effect is currently being felt in the stock market. Before anyone makes a crack that the “fat cats are getting what they deserve”, consider that millions of Americans have retirement portfolios in the stock market as investments or HAD retirement portfolios in the stock market. The markets have moved beyond looking at book value or earnings growth ratios for equity pricing. The many analysts who normally provide ratings and reviews of the myriad of equities and bonds in the market place, have through a complete loss in understanding of what will happen next, capitulated, and have no prognostications – they are frozen. Experts are frozen. There simply is insufficient information available to recommend an investing path. All the traditional safe plays have tanked. Then should anyone be trading?
Both corporate and municipal pension plans have seen a drain in value from 15% to as much as 35%. Individuals in or near retirement have no way to recoup their losses. Money is draining from mutual funds at an alarming rate. The general loss in wealth for this country’s citizens, while we wait for the Treasury death by drip, drip plan to kick in, as they are acting in a deliberate manor, while the world crumbles around them, is astounding. The only exempt group from this loss of pension wealth is the government worker because their pension is set under parameters of retirement.
The Administration, Congress, and the Federal Reserve need to immediately:
- Eliminate Mark to Market or at least temporarily modify it.
- Guaranty all creditors of this country’s National Banks.
- Cease trading on all domestic stock exchanges, to allow a cooling off period.
- Reverse the current property value deflation by stimulating the purchase of resale homes – a special limited time, one year, super low rate mortgage program offered through the FHA; perhaps a 7 year adjustable rate mortgage. (An Alternative to the Massive Mortgage Bailout!)
- Offer a substantial tax credit for the purchase of residential resale home foreclosures between now and June 30, 2009.
The lack of speedy supplementary post reaction to the rescue bill, in light of the markets meltdown, represents gross malfeasance by this Administration. It appears that no one in Washington has a clue. Nancy Pelosi is talking a stimulus package – spoken by someone who is pandering for votes while the country’s economic system melts down. She and Harry Reid should be calling the House and Senate back into special session to work on a mortgage program and only a mortgage program – no pork, no electioneering! This is no longer about the million or so homeowners in foreclosure. It is now about the 50 million in or near retirement suffering retirement financial failure.