To fix the credit crisis Washington needs to figure out what to do with the bad loans that the banks made. The problem is that as long as the banks are holding these bad loans as assets, they will have insufficient capital to lend to credit worthy businesses. If businesses can’t expand, they won’t provide jobs; without jobs there is no spending.
Giving money to the banks last fall didn’t work – they are still nearly insolvent, they are not lending; they insist on continuing to pay themselves handsomely while we lose our jobs. People are fed up with solutions that throw money at Wall St. while asking those of us on Main St. to tighten our belts.
That’s why a recent solution proposed by the new administration is so incredible. The idea is to have the government use good tax payer money to buy up the bad assets of the banks leaving the banks with the remaining good assets. The banks then will be financially solvent and presumably will start lending again; businesses will borrow and start expanding and spending will resume.
The bad assets will belong to us. In other words we pay good money to make up for the mistakes made by bad bankers, they get off the hook and we are left with the bill. In the mean time, auto companies are being chastised for being uncompetitive and are told they have to restructure or go out of business. Oh yes, and for years we have been lectured by Washington on how providing welfare to people who have fallen on hard times only reinforces their bad behavior. Are you really willing to put up with this?
There are two things we can do. First we can vote with our feet and take our business elsewhere: we can put our money in and refinance our mortgages with small local banks and credit unions. Second, we can lobby our representatives to reject a further bailout of the banks. Instead of using our money to buy the bad assets of these failing banks, our money should be used to buy the banks themselves and to start operating the banks for the benefit of Main St. businesses and working people. If the banks are too big to fail then surely they are too big to be left in the hands of incompetent bankers.
Let the captains of the banking industry join the ranks of the unemployed – they acquired these bad loans and they should take responsibility for their actions. After all, they have been telling us for years that it is wrong to interfere with the dictates of the market and that helping people in hard times is counterproductive. They are wrong on both counts of course, but then, they have been wrong about so many things. It is time that we step in and put things right.