Sean G.

My Proposal for Improving Lending Between Banks

I think your plan is thought out but below I have an addition to the plan. Let me know what you think about it.

Also, in regards to LCACM's comment about manufacturing jobs. I agree that we should spend resources on projects that will improve our country and our ability to work and live. This is what the highways and big infrastructure projects of the 1930s did for the post-World War II U.S. However, I am not certain of the true effects of an international minimum wage. I will certainly think about it more though. Good to come up with ideas.

Below is an alternate plan to the $700 billion bailout that will work.

With all the talk of the economic plan on the table to supposedly help the U.S. and world avoid an economic nightmare I agree with many to believe this plan is severely flawed. The main objective of this plan, according to its authors, is to free up lending as they are concerned that if no action is taken banks and lending firms will be severely pinched by their mortgage mess and therefore not be able to or willing to extend credit to businesses and consumers at the same level we see today. That in turn will limit the spending power of these consumers and businesses, both big and small. For consumers it will mean they cannot afford that car, house or even college tuition they were planning to borrow for unless they had stellar credit or the cash on hand to pay for it outright. For businesses it will mean they cannot afford that improvement they needed to stay competitive or the capital they needed to keep the payroll moving during slower weeks again unless they had stellar credit or the cash on hand. This scenario alone might not seem all that bad to us as we might say if they don't have great credit or the cash on hand they shouldn't buy it anyway. However, the greater implication for this scenario is further reaching. There is a vast majority of consumers and businesses that have neither excellent nor terrible credit. They pay practically all bills on time and most certainly will pay debts in full over the course of their life. They just might not have a perfect record. These are the consumers and businesses who will be squeezed out by the lessening of available credit out there and you might be one of them.
What does it mean for you, according to the authors of the current bill for a $700 billion bailout in Washington? When these consumers and businesses stop buying these items, the companies who sell them will have a drastic drop in sales and will most likely lay off employees and may default on their own loans as a result of the loss of revenue. Further, house prices will drop dramatically as a result of fewer buyers on the market who can obtain a mortgage (which may or may not be a bad thing in itself considering how inflated some markets are these days.) Those employees who were laid off may then apply for unemployment insurance, exhausting the fund, and default on their own loans and mortgages, further worsening the problem. Is this scenario possible? Yes. Is the $700 billion bill as proposed now a fix to it? I doubt it and so do most people on Capital Hill and in cities across the U.S.
The problem with the bill in Washington right now is that we are rewarding the companies who created this mess with their bad decision-making by buying the mess from them, hoping if we held onto it as taxpayers it will be easier to deal with and they can then resume their lending to the world. We are entrusting billions of our money into the hands of the very same people who proved less than capable of handling their own money. This is surely flawed judgment if we think this will result in a good outcome.
If the problem facing us is how we could protect the American credit system and keep it vibrant and stronger than ever so businesses and consumers can grow and prosper then why not a different, more direct solution? If we could afford to bail out the mismanaged lenders with $700 billion then why can't we create a $700 billion fund that could be used to directly lend to businesses and consumers that have good credit and good goals in mind. This fund would solve the problem that the authors of the $700 bailout plan are warning about. It would also better free up the ability of the next president, whether Obama or McCain, to keep on their promises of investment in new technology, new programs and a new America unlike the current $700 bailout plan which would all but cut off any new spending for years or decades to come. The plan would essentially force the companies who made continuous bad decisions when it came to lending out of business and allow the banks and companies who were intelligent with their behavior the chance to grow even more, right in line with the American ideals of capitalism at its best. The Treasury could even use the profits generated from the interest on these good loans to start to pay off the national debt, further freeing us up over time. What if the government cannot set up a loan screening and administration process quick enough to have an effect on the economy? Then I suggest we lend the money to the banks who proved reliable during this crisis as they have the means and judgment to get us back to fundamentals that work. This includes not only the larger national institutions that seem to be reliable but also the thousands of local banks and credit unions that would be able to revitalize their respective local areas with these loans. With this plan we can turn a challenge into a fantastic opportunity.
A lot of people are up and arms about the $700 billion bailout because it seems flawed in so many areas. If a crisis is upon us now is the time to solve it with a simple and logical plan, not a politically motivated plan that few believe in. If you feel this plan might work better please forward it on. If you feel you can improve it please do so.