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Oct. 1st, 2008 09:35 amThe Wall Street recapitalization bailout payoff bill sucks as currently constituted.
There is, however, another alternative on the table, which is a far better start towards righting the ship of capitalism. Rep. Peter DeFazio and a number of other House progressives introduced the No BAILOUTS Act yesterday. Here are its five effective principles:
1. Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.
2. Require the Securities and Exchange Commission to restricting naked short sells permanently.
3. Require the Securities and Exchange Commission to restore the up-tick rule permanently.
4. “Net Worth Certificate Program”: This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.
5. Increase the FDIC Insurance limit from $100,000 to $250,000.
This leaves plenty of room to recapitalize individual institutions as necessary without providing an opportunity for an unscrupulous Secretary of the Treasury to loot the countinghouse with no oversight. (Not that King Henry Paulson is unscrupulous, compared with the rest of the Administration. He is, in the words of the song (and bending geography slightly), "as honest as a Denver man can be.")
I'm about to call my Congresspeople and urge them to support this; I rarely recommend specific action, despite that I make no bones about my political leanings. But I strongly urge you to contact your own folks in Washington get them on board with this, too.
There is, however, another alternative on the table, which is a far better start towards righting the ship of capitalism. Rep. Peter DeFazio and a number of other House progressives introduced the No BAILOUTS Act yesterday. Here are its five effective principles:
1. Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.
2. Require the Securities and Exchange Commission to restricting naked short sells permanently.
3. Require the Securities and Exchange Commission to restore the up-tick rule permanently.
4. “Net Worth Certificate Program”: This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.
5. Increase the FDIC Insurance limit from $100,000 to $250,000.
This leaves plenty of room to recapitalize individual institutions as necessary without providing an opportunity for an unscrupulous Secretary of the Treasury to loot the countinghouse with no oversight. (Not that King Henry Paulson is unscrupulous, compared with the rest of the Administration. He is, in the words of the song (and bending geography slightly), "as honest as a Denver man can be.")
I'm about to call my Congresspeople and urge them to support this; I rarely recommend specific action, despite that I make no bones about my political leanings. But I strongly urge you to contact your own folks in Washington get them on board with this, too.
