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Friday, September 26, 2008

A Bailout Plan

by folkbum

As I said before, I am not interested in saving the banks, executives, boards of directors, and so on who caused the current crisis. Let them all fail, retire to the boonies, and be replaced by a new crop of (hopefully) smarter folk who will not leave us quite in the lurch so much. To that end, I am kind of relieved that so far there is no deal.

On the other hand, I'm sympathetic to the argument that, until the market finds its feet again, credit will freeze. And a frozen credit market has severe repercussions, from the housing industry through the auto industry, even down to student loans and the cost of milk.

So here's a plan. Remember, I'm not an economist but I am a bleeding-heart liberal. That's where this comes from. The main idea is that if credit is hard to get, then the federal government should be giving out credit. Here's how:
  1. Set aside a bunch of money--and since we're apparently allowed no to just make up a large number and call it "right," I might suggest something like $800b--and use it to fund low-interest (2.5%, maybe?) small-business loans. Administer the loans through the states; businesses would have to show that they were rejected by at least one real bank first. Since the loans are administered through the states, let the states keep the payments and interest, and mandate that those funds be used for local tax relief, education, and infrastructure upkeep and replacement.
  2. Set aside another $200b or so to offer as debt-consolidation loans to consumers who hold high-interest, non-mortgage debt that is greater than, say, 25% of their income. This could be used to make auto loans cheaper, for example, or credit to buy appliances or other durable goods. Banks can make loans at rate that they're comfortable with--10% or 12% or something--but then consumers could consolidate the debt at a lower rate (again, maybe 2.5%). Again, go through the states with the states keeping the proceeds, to be used for the same items as above.
  3. Offer more federally subsidized student loans and Pell grants.
  4. Partially offset the cost of these (if you're counting, now well over a trillion dollars) by a reduction in payments to the states that already cover infrastructure and education.
  5. Further offset the cost by imposing an electronic transaction tax, which is like a sales tax on any electronic movement of money, of something like 0.05%. This would barely affect the majority of us (if you buy $200 worth of groceries on your debit card, you'd pay an extra 10¢ in taxes), but would make the big banks and brokerages more cautious about doing massive deals. A mutual fund moving $2m in funds in one day would pay $1000 in taxes. A $20 billion merger would create $10 million in taxes. And so on.
Again, I'm not an economist, but I think this plan would keep much of the consumer and business credit operating that we'd need. It would create or save jobs. It will help people pay for college. It would cut local taxes and spur local investment. So ... tell me what's wrong with it.

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