Bail Out Wall Street the Right Way, A Letter to Congress
Tuesday, September 23, 2008 at 09:57AM By Orion Daley
Dear Congress People:
As an alternative to the US Government having to absorb up to $1 Trillion in questionable bad paper from Wall Street, I ask you to consider what I see as a viable alternative.
This will, more than likely, than otherwsie, prevent the American Tax Payer from having to absorb this debt, and obviate the need to write callable bonds to foreign investors for it. In the mean time, it allows institutions on Wall Street a liquid path for addressing their liabilities.
Please consider the following: It is about a straw man for an investment vehicle. It is intended for any institution in question that could affect the over all fabric with its counter parties from its own exposure.
Although the US Treasury is not willing to lend a hand in such cases, I believe a workable solution can help off set liabilities to improve the bottom line of the firm, and if needed, for potential buyers .
As every transaction is taxed, netting is used as a means to average these obligations on a daily bases. This is for billions of US dollars in our banking systems.
Consider , that for a period of time, with government consent, if taxes which are to be paid quarterly to the federal and state governments, are to be invested instead in a non taxable capital markets fund that are managed by the institution. Payment into this fund is to be based on the daily netting amount.
Over time, the non taxable investment fund will build on its own due to its profits in addition to a quarterly based payment by the institution.
When the fund investment reaches 4 times is original starting value, or the average quarterly netted taxes, then 25% of this will be applied to taxes and 75% maintained in the original fund for capital market management.
At this point, those profits that are made on the fund are to remain in it, and the quarterly tax on the following quarter, for the previous one are to be applied to actual quarterly tax.
Hence, for a period of time, this is in effect, having the government making a non interest based loan for taxes owed while the institution can put the money to work.
The Treasury is not lending tax payer dollars for a bailout , but is allowing the firm latitude for building assets to balance its liabilities.
As this 75% grows it is to replenish the 25% periodically. When the 25% actually exceeds the normal quarterly tax, this overflow can be applied toward firm liabilities, and the original 25% applied toward quarterly tax.
At this point, in switching 180 degress, the 75% can then be considered an invenstment on behalf of the government which it can borrow against as is needed.
Respectfully,
Orion Karl Daley
Presidential Candidate for 2008
Author - The New Deal ISBN: 1419670948
for the Strategic Future of our nation
Balanced Party http://unity2008.org
New York, NY, USA -
Reader Comments (5)
Beyond the government bailouts of financial giants like Fannie Mae, Freddie Mac and AIG, we need to restart our economic engine by fixing our real economy - where real people live and work.
We need immediate action by Congress to provide relief for working families, create new jobs and rebuild our economy from the ground up. The AFL-CIO is calling for fast-track congressional approval of a new economic stimulus plan that includes:
A moratorium on home foreclosures to allow for a restructuring of subprime mortgages.
Extended unemployment benefits for jobless workers.
Fiscal relief to states and funding for food stamps to make sure all Americans can provide for their families.
A jump-start for ready-to-go construction projects to repair schools, roads and bridges-construction that will help create good, family-supporting jobs in many communities where currently there are none.
Please call your member of Congress today and tell them to take action:
(202) 224-3121
We need to fix the real economy because families like yours remain our true economic engine. It is clear that our economic system is out of whack and we need to get to work fixing it right now, not just bailing out huge corporations.
Should the Federal Govt. Bail out Banks and Investment Companies?
Ratio
Yes, Save jobs and the economy 13%
No, Let the Free Market work 87%
Also a grasp of the obvious. These are all good points that you made; and in fact I am very pro union.
But this does not address the idea I propose to let Wall Street Bail itself out; but in a way that is in fact regulated.
We must hold Wall Street Accountable, and I do not mean some lame poltical blame game.
Most pointedly - If we expect Wall Street to recover and do business, then why not expect them to bail themselves out?
Given a means to do so as is proposed:
1- There is far less risk than passing it off to the tax payer, regardless if via the Dems or Repubs strategy for doing so.
2A- The Treasury would not have to inherit the obligation to resell bad paper: where investors such as China, Kuwait, Dubai, or Saudi Arabia to invest in these junk bonds,would probably expect for every dollar, to have a return of at least 3 to 4 times.
After all, would you buy such bad debt with out good reason ?
2B- By selling bad paper, makes not a $1 trillion, but a $4 trillion liability that each of us will shoulder. Further, to invest in such risk, a foreign investor would also expect these bonds to be callable. This means that they can be fully redeemed upon demand before their maturity.
There is no way that these junk bonds can be fully redeemed. The Fed cannot just print more money, and this can only jeopardize what economic solvency we might have some day.
This solvency is what true national security is about: the health , safety and welfare of our families.
3- By having Wall Street fix this, it demonstrates that Wall Street can actually make an ethical profit where such profits can be used to back the bad paper.
4- Then the mortgage industry has a actual road to recovery.
example - By the government allowing Wall Street to temporarily reinvest what they normally would pay in quarterly taxes, Wall Street in a matter of a short time can earn actual money to back what was their trillion dollars of bad paper.
If the government does so choose to sell junk bonds, it is Wall Street that can back them in a meaningful way; and it is not a burden on the tax payer who already has $10 trillion of other national debt to deal with: i.e - about $50,000 for each of us, I figure -
. . . . . . .
About the AFL-CIO's plan - let me share mine assuming what I propose for Wall Street was to be put in place:
1- To Protect against being abused from future unsound Lending Practices, they are to be simply outlawed. The concept of lending is to be by fair practice only. It is to be for the purposes of bettering the American's quality of life and the quality of life the he/she can offer other Americans.
2- To Stabilize and Restructure Variable Rate Mortgages. This is by:
A - placing a moratorium on foreclosures that are from the result of teaser mortgage.
B - Provide Social Welfare Bond Coverage to fill in the financing gap.
C- Determine the legitimacy of such loans.
D- To restructure such loans where needed based on the Social Welfare Bonds
E- Perform fair arbitration to recover credit worthiness of consumers of such loans.
F- to prosecute lenders where other more viable loan conditions could have been offered for the existing market.
G- where determined to repay home owners who have been financially exploited by such lending practices.
About a New Deal, it might be of value to be aware of http://unity2008.org/?ThePlan.html -
I welcome further comments -
Orion Karl Daley
Presidential Candidate for 2008
Author - The New Deal ISBN: 1419670948
for the Strategic Future of our nation
Balanced Party http://unity2008.org
New York, NY, USA -
So the core issue behind the current mortgage crisis is primarily
"disillusionment" (= removal of false illusions), and Wall Street itself has not caused financial pain to an impartial
"average" of all housing buyers and sellers..
For every recent purchaser of a US house, there is another person who sold that same house at a ridiculously high price. Those house-sellers, by definition, have already reaped a financial windfall equivalent to whatever financial losses are currently taking place in the US mortgage market.