I don't know how it gets fixed without more money, but an important key to getting the economy moving again is to get the banks lending. It's those loans that provide the leverage for significant growth to occur.

Basically, what we have now are banks that are undercapitalized, even with the $350 billion already pumped into the system. Because they are on the regulatory edge of required capital ratios, they cannot afford to make anything except the most "sure thing" (lowest risk) loans. Clearly, with these economic conditions there are virtually no corporate borrowers who represent no risk--I can't think of even one corporation who might want to borrow that we could call AAA right now.

In the end, what has to be done is that are large chunk of the "toxic assests" have to be somehow taken off the books of the banks. That would immediately improve their capital ratios immensely and almost certainly result in their accelerated lending. The profit motive would kick in and get them lending again. That might be a less expensive "stimulus" alternative than others being discussed. Those loans are already trading at pennies on the dollar--the banks have already written off a lot of the principal amount due--so the government could buy them really, really cheap. The government wouldn't even have to hire any people to manage the loans. Just pay the banks a modest fee for continuing to service the loans until they are collected or foreclosed on and liquidated.

Getting the banks lending again might be the first thing to do before anything else. That might be the cheapest lubricant to get the economy turning again. That won't make the public happy when they donlt get a tax reduction (that would be the second thing I'd do) or all the states and cities who are lining up at the trough to get government-funding for infrastructure projects. But all that may not be necessary until it's determined that just getting the banks lending isn't working.

The only problem with this idea is that banks don't vote in elections, so other than the American Banking Association's political contributions they aren't all that popular with the elected legislators..

On this point I may be a little naive but who is it the banks aren't lending to? I can get a home loan, second mortgage, car loan and all the credit cards I want. In fact I get more offers now. I know several small and medium business owners who's numbers are suffering as well but they aren't having any trouble with business loans, flooring, etc. Our company with 200 employees is doing great and is even hiring some folks. No credit problems there either.

Maybe the one's having trouble with financing are the ones that shouldn't be getting financing in the first place. Anyone I've talked to in recent months that has a decent credit rating can get loans including businesses. It's bad but I don't think its panic time. Like I said, we've been through this before and the market will work itself out. When has it ever not? The only time was the great depression and like now the government starting throwing money at the problem and it only prolonged it.

Funny how during the Reagan years the left was throwing a conniption over his 200 billion deficit. Now they want to lump trillions on it and they don’t even bat an eyelash. What’s wrong with this picture?

I still say a big fat no to any more bail outs.

Have a question for all you financial gurus...this is an area where I get lost...EXCEPT...my big concern is WHERE the money goes and how it is used.

I read today that President elect Obama wants a great deal of the new money to be used to bail out folks facing forclosures. Has anyone heard or what is opinions on WHO these folks are and how they are chosen ????

I know I sound very unsympathetic but I dont just want some line of folks waiting for a handout to save their home with no conditions whatsoever. If you feel that sounds harsh, I am sorry, but we have been regaled with stories of NO INCOME, NO ASSET mortgages....and the such. I frankly dont want those folks "saved" ! I type that and it looks harsh but that is how I feel !

Nothing occurs in DC that Special Interest Groups (SIGs), Political Action Committees (ACs) and industry lobbyists don't influence if not downright manage. That's the way of things, pure and simple. Congressfolk do not maintain cadres of subject matter experts, and so they tend to rely upon the "assistance" that SIGs, PACs and lobbyists provide in interpreting complex data. Ironically, the interpretations also tend to be slanted towards a position/solution which just happens to match the goals of the SIG, PAC or lobbyist preparing it.

While there may be no such thing as a fully-funded problem, throwing money onto a fire only results in a bigger glow from the flames, and nothing but ash and smoke afterwards. In my past businesses and my current endeavor, money wasn't committed without a demonstration of need which included at minimum: 1) a cost/benefit analysis, 2) specific targets and goals, 3) a profit potential including a cost curve, and 4) an independent review (sanity check) to insure we weren't snowing ourselves or missed something important. So far, ABSOLUTELY NONE of these things have come forward - just "gimmee gimmee gimmee." And Congress and the President gave - big time.

If many banks can't lend money because they don't have it to lend, that's probably a good thing. If certain bankers can't run their businesses under the existing laws, the choices are simple for them: 1) change careers, 2) get smarter, or 3) seek changes in the laws. The FDIC already "owns" a lot of banks because banks fail - just like other businesses. So far I haven't seen any bank executives liquidate any of their personal holdings (all made during the boom-town times, including some remarkable bonuses) to bolster their businesses.

Personally, I'd just as soon see these banks which gambled - yes, gambled - their assets without adequate protection close their doors. FDIC has sufficient authority to fix this situation, and that only makes the survivors stronger - just like other industries.

Yes, those with decent credit ratings can still get loans. Banks sell money today for more money tomorrow - that's what they do. If banks sell money today for little potential of getting more money tomorrow - that's their fault. Dumping $350-900Billion more cash into the "system" does not make the bankers any smarter in running their businesses, but provides them with the resources to cover their stupid decisions - and no protection to the country that they won't make the same dumb mistakes again.

Will any of the money buy smarter future decisions or just cover the losses of a SIG so that its members can breathe a sigh of relief? So far, we've been given no proof that this isn't just a hurry-hurry shell game to protect a select few at the expense of the many.

No money without a plan! I thought Banking 101 taught not to loan a dime without a comprehensive business plan. Where's this one? Shoudn't "We, the People" see one before opening the vault?

I don't disagree with anything you've said. with one exception. It's impossible to create a business plan for an entire market. If additional funds were investd in banks, the government along with the bank could determine the effect on it's capital ratio. The margin over that minimum required to meet regulatory and soundness requirements could be measured. The amount of that margin could easily be calculated to determine how much in additional credit exposure each bank could take if creditworthy borrowers asked for credit.

It's that last part that's impossible to model. Some assumptions could be made--which as you and I both know are the basis for any business plan anyway--to assess how much additional bank credit capacity would be created by new government investments. But that's all any such plan would be--assumptions. Only reality would determine whether creditworthy borrowers would show up on the bank's doorsteps.

One thing I'm pretty sure of--prospective retail borrowers who want to borrow 110% of the value of their home, or who don't have an employment history showing that they can repay their loans, will not likely get beyond the bank guard at the front door. It won't be all that different with corporate borrowers. The little guy who needs a loan for his hardware store "just to make it until sales increase" can probably have coffee with the underfunded mortgage borrower.

You would have an argument that it's that type of corporate loan that has already been made to the auto companies and you'd be right. That could produce an argument that the next traunch of government stimulus money should go to all the little hardware store and botique owners across America with possibly better results on economic activity. But those folks wouldn't know a business plan if one jumped up and hit them in the face.

The situations you describe are visible within The Villages. Case in point - the restaurants and other businesses that fold during the summer due to lack of proper capitalization to cover the slack periods.

As far as a business plan for an entire industry, I agree, since no one can identify who would act as the coordinator for it. However, those banks/companies,etc who are looking for funding should be able to individually prepare comprensive business plans which include as a minimum: 1) why the money is needed; 2) downstream distribution schedule; 3) repayment schedule; and 4) protection to the provider. if they can't do that, they should not "feed from the trough" because they are too flaky.

I would like to think that the experiences which spawned this mess have resulted in sufficient data to prepare financial actuarial tables which can serve as the basis for loan origination decision algorithms that can keep banks "in the black." Without decent tools for decision-making, we're destined to never get off this merry-go-round. And one would hope that all future loans which involve bailout moneys are contingent upon positive algorithm scores. If that's not the case, then it is all just a crap game.

Fox and Friends had a pundit on this am who had this idea to "stimulate" the economy.... eliminate all Federal personal income tax for 6 months... his assumption was that people would use that money to "buy things" which would start the wheels turning to stimulate recovery. The cost would be roughly equal to the 3-4 hundred billion blank check Obama went pleading for on The Hill. At least it eliminates the "special interests" from getting the $$$.

Only two problems with that idea...

--There's no assurance that the public would actually buy things that would create demand, production and more jobs. They didn't with the 2008 tax rebate money, they saved most of it. If they used a lot of it to save or pay down debt, no stimulus would occur. Basically, too much risk that the public wouldn't do what would actually stimulate the economy--spend on goods.

--The second reason is actually the basis for why the public may not spend on the right things discussed above. A temporary tax reduction violates a tried-and-true economic theory for which Milton Friedman won a Nobel Prize. Friedman, who was a reknown expert in consumption theory, proved that consumption patterns would not change substantially unless consumers had the confidence that their income levels would be relatively permanent. From a theoretical perspective--well proven but yet theoretical--a six month vacation from income taxes would not be expected to result in consumption changes that would be beneficial in stimulating the economy in the long term.

It's Not Easy
 

Even though there are fewer participants in this thread than I had hoped for, I think we can see that this isn't an easy choice.

--No stimulus probably means a prolonged and deepened recession or even a depression.

--A short term tax reduction aren't likely to produce the desired results.

--There will be huge debates over who should get the tax breaks. Extension of the "Bush tax reductions" would place more money in the hands of the wealthiest Americans, who probably couldn't or wouldn't use the money for consumption. The argument has always been that the wealthy would "invest". But the amount they could invest in this economic scenario would be like peeing into a hurricane. Consumption is what's needed, not investment. The best place to "spend" the tax reductions would be on the middle class, who likely will increase their consumption. Those with low incomes aren't really a big problem in the debate because they pay little if any taxes anyway. But it will be a battle in Congress because they will want to "fund" part of the middle class tax reduction with increased taxes from the wealthy when the Bush tax cuts are eliminated.

--They talk about "shovel ready" public works projects. There is nowhere near enough stimulus money being discussed to even begin to fund the projects that the cities and states want. This will be a huge political dogfight.

--Then in only a couple of months the auto industry bailout will rear it's ugly head again.That's almost a certainty.

--And as was discussed above, the banks still aren't lending. That's not going to happen without some sort of stimulus.

--Any combination of stimulus plans are certain to saddle our children, grandchildren and probably great-grandchildren with enough debt that even that many generations might not be able to pay it down.

This battle is going to be more interesting to watch than a weekend of non-stop WWE wrestling. The only problem is that we all have a dog in the fight. A couple of dogs maybe. And certainly many of the younger generations in our families.

There are so many problem with our economy that it is difficult to say where to start. It took a long time getting here and it will take a long time to fix. There are several problems that have to be solved to get this country back on track. I would suggest this priority, but would accept them fixing any one to start. And I would force as much as possible into the private sector and limit government involvement as much as humanly possible.

Energy. We can't keep sending 100's of billions to the mid east and maintain the life style we have. We need to stimulate that sector of our economy by providing many more options. And ALL types of energy need to enhanced. That mean more domestic oil, more nuclear plants, wind, solar, tides, coal, oil shale, hydrogen, bio-fuels, and any other that gets identified. Set a goal of 10% reduction of current imports every year, tax any beyond that heavily, use the income to in-cent domestic production, and be completely energy independent in 10 years. Difficult? Yes, Possible, also yes.

Housing. This was the largest contributor that got us into the financial mess we are in and must now resolve. Keep interest rates low for the next 36 months and then let the free market take over. Set a cap on all existing home loans of 5% for the next 60 months. Provide an incentive, probably no tax on the interest for a period of 10 years, for those home owners willing to provide seller financing on the sale of their primary residence. This could apply to the down payment or some % of it. Let the government buy mortgage back securities, only those currently out there, no new loans, and set interest rates on those loans at a prime plus 2% until all are cleared. Once a property is sold or defaults, goes out of the program.

Immigration. Step one, secure the boarders. It does no good to implement any fix in this area until we stop the problem from growing. Then give everyone here a fixed amount of time, maybe 3 years, to become a tax paying citizen, or they will be deported. Allow guest workers with a time frame and tracking method, maybe ankle bracelets, as required to solve seasonal labor requirements. BUT this program is only allowed when unemployment is below 5%. Any time it goes above that level it stops.

Taxes. Lower taxes cause tax revenues to increase. Proved many times over. However there are better tax systems then what we currently have in place. A flat tax, or a national sales tax, some way to collect revenue on all money spent. Even if it has higher % for different income levels as long as it's fixed and defined and any % increase only applies to the higher amounts. Some will suggest that's what we have today, but we really don't. Lower to no capital gains tax on domestic companies for the next 5 years. See how fast people invest in the US then.

There are many more problems that need action, but focus all resources on fixing these 4 and most everything else will fall into place. If you notice a common theme to these, good observation. Defined goals, limited government, sunset time frames. And all of these will cost far less then the current suggested spending plans. Delay all other government spending except for security related items. Nothing works and our economy will implode if we have another major terrorist hit. Imagine a large US city being hit with a nuclear bomb. 9/11 cost 100's of billions, a city eliminated would bankrupt this country overnight.

You forgot health care. Not surprisingly it has slipped to the back burner. Our current system is too expensive, inefficient, profit driven and horribly fragmented.