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September 29, 2008
Gentlemen:
The purpose of this proposal is to
offer an alternative to Congress. The current $700
billion proposal burdens taxpayers with excessive risk
at the expense of abusive institutions. The
simplicity of this proposal allows its efficiency to
take immediate effect with little risk to taxpayers.
The goal is to stabilize the banking system and to
re-stabilize the global economy.
First of all, there were three primary
perpetrators in this corruption, and they all should be
held accountable. First, the lack of oversight by
the US government was a primary cause, and the
government should be held accountable. Next, the
lending institutions who abused the system should not be
allowed to profit from its demise; they need to pay for
their mistakes. And the mortgage buyers who
speculated on higher housing prices at the expense of
moderating risk are also to blame; they should not be
given a pass for their mistakes either.
The motivation to this excess was
driven by greed. Now, many of those same
perpetrators are trying to force the hand of Congress by
imposing fear into the system instead as negotiations
become heated. Fear that the banking system will
collapse, fear that housing prices will fall, fear that
the Market will crash, and fears that come election time
they better have made the right decisions are weighing
on the minds of our policymakers. These fears can
cloud judgment just like greed did initially. Stop
being afraid of what lies ahead and start being
proactive.
First, the economy is going to weaken
over time, based on the diminishing demand for
investments. This cannot be stopped.
Therefore, accept that the economy will be under
pressure, expect it to contract, and accept the fact
that people will indeed lose jobs along the way.
Find a concise study on this subject by reviewing The
Investment Rate, by Thomas H. Kee Jr.
With that understood the direction of
Congress should be to lessen the burden on the taxpayer,
and soften the blow of a weakening economy as best as
possible. This means, specifically, taking control
of government debt. Excessive debt by our
Government has directly caused many individuals to feel
that they too can incur excessive amounts of debt
without concern. Reality hits hard, and it is
hitting now. Take control of the debt burdens of
the country.
Direct relations to the current
proposal exist in the $700 Billion pricetag. The
US Government cannot afford to do this, not in the face
of declining demand. In addition, the risks
associated with these synthetic debt instruments are
likely to cause that initial cost to be completely lost.
First, the declining demand and
weakening economy that is indeed coming with or without
this current banking crisis will influence many more
defaults, and many more bank failures. Therefore,
the US government will be left holding worthless
synthetic debt and have no one to turn to to recoup
their losses, in many instances. The loan will be
dissolved, the bank will be dissolved, and the $700
Billion pricetag will have a high probability of being
integrated directly into Government Debt in the form of
losses. Arguably, this pricetag may also be
increased over time.
The current proposal being considered
by Congress does not guarantee that banks will begin to
lend to each other though. At that's because risks
will still exist. Those risks need to be dissolved
in order for the banking system to continue.
That's what my proposal does.
The proposal below is not complicated,
but it is very effective. The premise is, we need
to allow banks to fail, but we need to preserve our
banking system.
My Formal Proposal:
- Develop a Guarantee Trust
Organization to protect banks who lend to one
another. This would act as insurance between
the banks. The US Government would guarantee
the monies and the risk of default between the banks
operating in our banking system would be completely
removed from the equation. This is the primary
goal of any and all proposals made thus far, but
none tackle the issue directly. This is a
direct influence to encourage activity within the
system.
- Require banks to separate
themselves into 'Good Banks' and 'Bad Banks.'
The disposition would be exactly like the purchases
of the good assets of Washington Mutual (WM) by JP
Morgan (JPM), and Wachovia (WB) by Citigroup (C).
- The GTO would guarantee lending
based on the assets of the Good Bank. This
would reduce the volume of lending activity overall,
but it would also allow the system to operate.
A contraction in the system is required and it will
happen regardless of the eventual accepted proposal.
My plan would quantify that contraction.
- In the even of bank failure the
GTO would absorb the assets of the 'Good Bank' to
preserve the integrity of the accounts, and spin
those assets off to a willing buyer in the open
market. The 'Bad Bank' and the proceeds from
the 'Good Bank' would be left to reconcile in
bankruptcy court.
- The GTO would recoup the
guaranteed funds immediately following the sale of
the Good Bank in the open Market. Therefore,
the proceeds of the Good Bank would be the net
purchase price agreement less the guaranteed funds.
This plan is simple, and simple works.
The Banking System will be preserved, although it will
have contracted. The measure will be quantifiable,
and this will please Wall Street. Lending will
resume, and the integrity of the Economy will be
preserved. Global Economies will also be a direct
beneficiaries.
The Taxpayer will assume very little
risk. They will not have the burden of holding
potentially valueless assets and the US Government will
not inch closer to bankruptcy because of this fiasco.
Banks will fail, and they should be
allowed to fail. The shareholders and bondholders
of those banks will be impacted, and they should be.
The good assets of the banks who fail will be absorbed
into sound financial institutions and a more stable,
reliable, and powerful banking system will prevail.
This will take time, but in the end the integrity of our
banking system will be much more than it is today.
More defaults and foreclosures will
occur, we need to accept that. In many cases greed
forced the hand of ARM loans and other creative loans
which are now causing the system to fail. Those
persons who engaged in these risky loans, with full
knowledge of the risk, should be blamed as well.
Politically, this may not sit well with some members of
Congress. However, it should. If your
constituents took aggressive loans based on the ability
to make a quick buck and they were left holding the bag,
taxpayers should not be forced to bail them out.
My plan is simple, straight forward,
it works, it preserves capitalism, and it will restore
our banking system, our economy, and the global economy
over time.
Please contact me directly with your
questions.
If this simple, logical, and effective
plan is something you support, please pass it on.
Sincerely,
Thomas H. Kee Jr.
Thomas H. Kee Jr.
President and CEO
Stock Traders Daily
http://www.stocktradersdaily.com
1.866.213.2067
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