The Quickest Fixes

Aside from the time limits that require rule reversals to the Bush administration’s last minute flurry of regulatory activity to slow the ability of the Obama administration to enforce regulations – including executive orders such as the ones pulling back environmental requirements or job safety mandates (but there are literally hundreds of these “last minute” attempts) – and the obvious immediate political issues ranging from Iran’s expansion of nuclear capacity and its support for Muslim radicalism, the Israeli-Gaza matter (even with Israel’s troops withdrawn) and the wars in Iraq and Afghanistan, the economy obviously needs action immediately.

With half of the TARP money currently on the table, there are several actions that could help stop the economic hemorrhaging of America. This cash, along with some necessary immediate economic legislation, is what we need in the next few weeks.

While President Obama’s January 24^th video presentation focused on his longer-term goals for his proposed $825 billion stimulus package, including laying in new infrastructure, upgrading educational and student loan programs, investing in technology research, building a new healthcare system and otherwise reigniting our moribund economy, these programs will take time to implement. “This is not just a short-term program to boost employment,” he noted, “It’s one that will invest in our most important priorities like energy and education, health care and a new infrastructure that are necessary to keep us strong and competitive in the 21st century.”

The administration has also announced additional initiatives to reign in executive compensation, create a central clearinghouse for derivatives and creating an immediate body of new regulations to oversee the black hole of hedge fund investments. Great longer term goals, but we need some strong short-term steps as well… and fast.

First, we need to stop the foreclosures for at least 90 days. The legislation for the government “super-bank” – a modern day Resolution Trust Corporation that I have already blogged about – need to be vetted and created. We need to stop the accumulation of vacant and unsellable housing, and if the feds buy these and other non-performing or under-performing assets, they can also get the right to require the lenders they are buying them from to lend again, cut executive bonuses, etc. They can resell these assets in a controlled, longer term structured release that would be appropriate as the economy solidifies, thus recouping taxpayer money as much as possible.

Legislation is also necessary to create the super-bank can also empower the government to require originating banks (or their buyers) to be responsible for restructuring real estate loans, even if they sold the loan package to another entity. The Obama administration can deploy a good chunk of the remaining TARP money to fund (to the lending bank) the underwater part of loans that are capable of still performing (not loans that people couldn’t afford in the first place), take a very small piece of the upside from the ultimate sale of the house (whenever that occurs… probably not more than 5-10%), and cap the interest rate on ordinary loans at 5% and on jumbos at 6% (but not mega-mansions!).

Further, as the government bails out the bigger financial institutions – looks like the Bank of America is next (the government shoved Merrill Lynch into them, and it seems like that was not necessarily good for the B of A) – it should become more proactive in those banks, opening the credit doors as they acquire increasing and often controlling interests in these banks. If some immediate action does not solve the plunge in the value of the larger banks, the government will effectively wind up having nationalized these behemoths, an administrative nightmare that could distract our focus from so many other necessary programs.

For a limited time (six months to a year), the government should also guarantee interbank lending so that the old syndication packages that fueled businesses to stay in business (and keep jobs going) can be reinstated. Some interest rate management is required, since the borrowing rates even for the minimally available lending (10%-20%) appear to be deal killers to many companies. It’s about keeping as many jobs in tact as possible. To most people, these “banking issues” sound like financial solutions far removed from their everyday experience, but if lending doesn’t begin to flow into normal business channels at viable interest rates, the resultant job loss will be staggering.

While there is a mass of required actions, short term stabilization of the housing markets and releasing job-saving business credit appear more easily addressed with a few well-placed and immediate steps. The ultimate payoff of initiatives such as these will do much to reach the beginning of the end of this horrific “managed depression.”

I’m Peter Dekom, and I approve this message.