We read report after report from pundits, legislators, and the media in which their explanation and narrative as to our current plight begins with the statement that banks are not providing reasonable access to capital because of uncertainties and fears towards asset viability on their own and others' balance sheets.
I would like to submit a component solution which deals with and seeks to collapse the time frame to which Smith's invisible hand restores, motivates and begins anew a more predictable and healthy flow of capital through our system.
Fundamentally, when creditworthy and industrious people of good character have limited and unpredictable access to capital, our collective economic system stumbles and productive assets of all types are beset with the vicious cycle of pessimism and diminishing valuation. My recommendation is designed to motivate and encourage the banking system to more fully deploy their capital, arresting this downward cycle and affirming collateral valuations.
The basic tool and motivator in this solution is taxation. A new piece of legislation is to be formed whose primary aim is to benefit all society, wherein stagnate and under-deployed bank deposits are taxed. The thesis is that banks are in the business of loaning monies, despite the cajoling of the Fed and Treasury after massive injections of the public’s monies in the form of new capital and asset swaps. The banking industry's collective uncertainties are preventing their raison d'être to maximize profits via interest on loans; instead they under deploying and hoarding capital.
As banks seek to comply with new leveraging requirements, deploying capital to the most favorable credit risk, a competitive lending environment will spring forth, wherein banks will actively seek out the best risk reward demand for their offerings, or be subject to this new Federal tax. This will greatly compress unwarranted and unneeded failures and losses due to capital starvation.
This will also reduce the need for further Federal commitments to unknown uses and dubious performance. The current $8.4 trillion deployment to-date has shackled our next generation, and will most certainly lower the American standard of living when faced with repayment. This indenture by all accounts has not produced an Apollo Mission, nor has it funded a new Green Energy Los Alamos project, or a new national highway system! Let banks able to perform do so and those that cannot fail. The sooner non performing banks are absorbed or disappear, the sooner asset predictability can be restored.
Politically this legislation would be a watershed event for any legislator who seeks to raise their rank in the public eye, Democrat, Republican, Libertarian alike. Special interest, government entities and vested politicians interested in being the primary borrower and orchestrator will fight tooth and nail. It is very clear that this novel catalyst would impose an action that creates a powerful lever both politically and economically. A trusted collation of from both sides of the aisle will be needed; this is a real political golden ring and a means of salvation to those suffering capital starvations.