Monday, April 27, 2009

REFORMS: WHAT MIGHT HAVE BEEN AND WHAT SHOULD BE

The causes of the current collapse of the economy I have done my best to outline in my column “Obama—The Un-Robin Hood.” I want to take a more positive approach to the problem by suggesting cures.

But, first, a word about what should have been done and, if the economy continues to slide, can be done: put money in the hands, not of the feckless financiers, but of every man, woman, and child in America. Take, say, $2 trillion dollars, divide it by the 300,000,000 residents, and issue checks for $6,666 to every one of them (or pay in installments). It does not matter whether this windfall is spent or saved; people can cover expenses, pay their mortgages, pay on their credit cards, or put money in the bank. People will be directly and promptly helped, the banks will get money one way or another, and the economy will benefit. All good, and what Obama, were he not a conventional capitalist and elite-pleasing politician, should have done in the first place.

Then, for the future, a few basic reforms can establish guidelines within which the market can operate freely and protect the larger interests of the economy as a whole. The resulting economic stability can play a political premium by reducing social stress and partisan rancor.

The thrust of these reforms is not to constrict the free market, but to construct a “fair market,” in which all parties to an economic transaction are reasonably informed of its benefits, costs, and risks. In capitalistic economies, all parties wish to maximize their individual interests by means fair or foul. As a result, one party often benefits at the cost of the other—with the present meltdown a cumulative result. To avoid such dire outcomes, we need to think of maximizing the collective value of the transaction to both parties. If so, maximizing and balancing the collective value of the transaction requires a mediator. That mediator is the government operating through rules and regulations which neither prescribe nor proscribe transactions, but ensure their fairness to all parties.

On this understand, I offer the following reforms:

• Transparency of all types of financial companies, trusts, funds, etc.
o Complete, accurate, intelligible, and standardized statements of corporate activities and financial reports
o CEO, CFO, and CBD certification of disclosure statements
o Zero-tolerance enforcement, and mandatory penalties and medium-security imprisonment for any violation of law for false or fraudulent filings or representations (confiscation of all company-related benefits, including those transferred to family and friends)

• Joint Legislative and Executive Branch pre-approval of all new financial instruments or arrangements, with market impact statements (like filings for new drugs or power plants)

• Non-transference of any debt instruments (loans, mortgages, etc.) individually or collectively with other instruments
• Dedicated excise tax on financial transactions for a reserve fund as insurance against a future regulatory failure or unforeseen circumstances

• Revitalization of anti-trust legislation to reverse already horizontally integrated financial corporations and to preclude future horizontal integration in the financial industry—all to eliminate the problem of too-big-to-fail mergers

• Integration of the credit card system, reform of its eligibility requirements, and reform of its costs
o A national consumer-credit clearinghouse to establish means-based limits on credit-card ownership, ceilings, and use
o Federal regulations requiring disclosure of, and limiting, interest, fees, and penalties on credit or debit accounts

• Substantial down-payment requirements on mortgages (like margin requirements for stock market purchases)

• Dollar-for-dollar income tax exemption for savings account deposits less withdrawals, with balances not more than the FDIC limit:
o General savings accounts: annual net total deposits not to exceed amount of earned income up to adjusted gross incomes of not more than 20% of FDIC limit, with tax on account interest
o First-home mortgage savings account: annual net total deposits (non-mortgage withdrawals taxed as income), with no tax on account interest

• Retroactive recovery of all non-salary compensation of any kind or amount since 1 September 2008 by officers or former officers of financial companies requiring federal assistance.

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