STOPPING THE DEPRESSION OF 2010
It is not working, and it is not going to work. The Federal Government pouring money into big banks is not the answer. In the past year we have experienced a perfect storm of declining asset values in housing and the stock market, which in turn led to a sharp cutback in consumer and business spending. This storm has cost Americans $7 trillion of stock market wealth and trillions more in home equity losses. And the spiral continues. We are currently seeing objectively healthy assets spiraling toward foreclosure due to this crisis in the refinancing market. An increase in foreclosures in turn leads to a further reduction in the value of all real estate, as well as in the stock market value of banks, REITS and other real estate related companies. The write downs in values have decimated the capital of financial institutions resulting in a liquidity shortage. This in turn has led to mass layoffs, and even worse, fears of layoffs in the future. Even someone with a good job today, is afraid to spend, because he is afraid he will not have a job a few months down the road. No amount of money added to the banks’ coffers is enough to stem the tide if the asset values on the banks’ balance sheets continue to decline. And if businesses and consumers are afraid to spend, reducing interest rates to zero cannot help either. If we don’t get effective action and change the psychology, we could be facing a depression of the 1933 type, only on a much larger scale. We need real change. There are three solutions which must be implemented in order to stop this crisis. We must protect the value of existing assets, encourage business to grow once again, and protect the jobs of the American people. Firstly, legislation must be put in place to the effect that all mortgages that are current on their interest payments be automatically extended up to three years, and cannot be foreclosed as long as they remain current. This will automatically create hundreds of billions, if not trillions of dollars in additional value for those mortgages held by the banks and other financial institutions, as well as the federal government. This will not cost taxpayers any money, as it is not a subsidy for overleveraged or subpar properties.
This law will simply ensure that good properties are not penalized by the current crisis. The second portion of the plan calls for the creation of a federally funded pool of money to be used for federally subsidized thirty year mortgages. The government would make available $1 trillion dollars, to be loaned at a rate of 3%, in portions of up to one million dollars to finance new home purchases. This money should be restricted to finance new homes, or homes built in the last three years, in order to most effectively target the majority of recent foreclosures. The financing of these millions of homes would have the immediate effect of increasing home values across the country. The indirect effect would be a dramatic increase in employment among realtors, mortgage brokers, and renovation contractors. As an added bonus, this plan would also have a major effect on banks’ balance sheets, which are still heavy with residential mortgages. The cost of this plan, estimated to be $10 $15 billion dollars per year in subsidized interest, is negligible compared to the magnitude of possible damage in the current economy. The third segment of the plan applies a similar concept to address the problem of failing consumer confidence. Congress should enact a Full Employment Board whose aim would be to prevent further unemployment. For a period of two years all corporations or LLC’s with more than 500 employees would not be allowed to terminate employeesexcept for causeunless they can demonstrate to the FEB that their survival is at stake. For companies like Microsoft, WalMart and Pfizer, who are still earning billions in profits every year, to announce layoffs in the present environment is counterproductive and symptomatic of the vicious cycle of fear that we are in. Employees who know that their jobs are secure will have the confidence to begin spending again, allowing all sectors of American business to flourish once again. This three prong plan, which costs no more than a pittance to the American taxpayer, has the potential to prevent unnecessary foreclosures, spur the building and financing of new homes, and create and protect the jobs of most Americans. These measures, along with the efforts of the Federal Reserve, will lift the national and global economy quickly and efficiently.