1. Mandate a 12-1 leverage cap for all financial institutions to take effect within 180 days 2. Temporary ban on capital raising by banks â water canât dilute poison. You eliminate the poison first then add more water. 3. Force banks, etc to reach this 12-1 leverage cap by selling their toxic assets within 180 days via a US Govt Auction. The US Govt will be the Auctioneer but will NOT bid for assets 4. Any bank that is unable to sell sufficient assets to bring it under the 12-1 leverage cap will automatically nationalized by the US Govt at a price of $1. All shareholdrers and bond holders forfeit their assets. This will provide an incentive to the banks/financial institutions to sell these assets. 5. The US Govt will now hold all the toxic assets to maturity - this will prevent private market bidders from low-bidding in (3) above. Private market bidders in essence are being told, you buy the assets during the auction or you will not have another opportunity to buy the assets, as the US Govt will sieze them at an effective rate of ZERO and then hold them to maturity. 6. Any bank that falls under nationalization will also have its CEO, Board of Directors and members of the Management committee for the past 5-10 years disgorge all compensation earned during the past 5-10 years. 7. Create standardized CDS products that traded on an electronic exchange. All non-standard CDS products should be liquidated in the OTC market or swapped into standardized CDS products prior to the commencement of the new CDS exchange. The exchange will commence within180 days. 8. New Mortgage Financing Rules: 20-30% minimum govt mandated down payments. Strict Debt to Income limits, etc. These rules must be codified into federal law. 9. New Credit Card/Auto Finance rules: strict rules on the amount of credit card/Auto finance debt available to consumers. This is the plan to address all issues of this mess. Yes there will be pain all around, but it will flush out the poison and set America on strong footing for the future. Most importantly it avoids the inflationary and weak dollar crisis that America will be faced with if the 700B plan goes through and it gets America of the drug called âeasy creditâ. We need to return to a âGood Cashâ society that lives within its means.
Problem is America runs on a false economy, CREDIT. People mean to start learning how to live below their means, not above. False economies = false lifestyles. Everything looks just rosy outside, but inside it's a house of cards.
Instead of $700 billion for companies in the financial services sector, what about a $700 billion bailout for chicken processors? I'm sure that Pilgrims et al could do with some extra cash right now.
I like your more hardline attitude toward this. #6 I would love to see this but most of that money is probably tied up in assets such as greenwich and hamptons houses. #8 & 9 by codifying limits on credit terms you restrict free enterprise in the lending market. Banking will become commoditized and competition reduced. The real problem is overvalued assets built by overleveraged credit. The solution is to determine fair value. The market will correct this problem if you let it run its course. It may be ugly for a while but it will work. If you come in with intervention it is more than likely to slow up the process (but it will salvage the dead companies that created this mess).
#8 & #9 are needed to address the issue of overleveraged credit that you refer to. the issue of overvalued assets is a direct result of overleveraged credit. Points 8 & 9 in my plan are key to avoid these problems in the future. Lending will not be commoditized. Some will pay 20% down, others will pay 30% down.... and lenders will adjust their rates/terms accordingly.