The answer to the banking problem
After the defeat of the “bail out” yesterday, many people are asking what should we do. One thing that would do a lot of good is to raise the amount the FDIC insures for customers that deposit money in banks. This will stop the run on banks, many are already seeing people take the money of of the banks to the level that the FDIC insures. But if you raise or eliminate the amount of money that is insured, people will not take money out of banks and will keep the money in the banks so they do not go under.
Another thing that should be done is get rid of the capital gains tax or cut it in half. This will have more people invest in the stock market and will not punish people from investing money and infusing money into the market.
Another thing that should be done is lower the corporate taxes so more money can be used to make jobs. This will get more people back to work. We have the second highest corporate tax in the world, this is ridiculous ion this time and go against what this country was founded on.
And there should be a “work out” to get the people that are defaulting or not paying their mortgages to an amicable resolution. They can lower the rates that they are charged and make the time to pay the money back longer and not enforce many penalties. This will be a win win situation for both the people that were in over their head in buying a home or were lied to or hoodwinked by crooked mortgage companies into buying ARMs . This would be the same as how many credit card companies get resolution from customers that loose a job or got into credit debt.
And what about the failing banks. Well, let them fail and go into bankruptcy. Why should the taxpayers bail out the banks when the taxpayers did no wrong. That is the real reason the “bail out” deal failed. Too many CONgressman were getting flooded by constituents telling them not to bail out the fat cats that mostly made a killing on the backs of the regular folks.
Here is a good article from CNN, of all places, about why we shopuld not bail out the banks .
Editor’s note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.
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The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.
Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.
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The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
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So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.—CNN
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