Thursday, March 12, 2009

On Clearing Debt

So far the plan for recovery seems to be throwing good money after bad in spectacular fashion and then sitting back and hoping for the best. The notion that we are unable to pay back these loans is unthinkable.The problem with the Obama approach at the moment is that timidity is going to make the problem sink deeper into the muck of indebtedness. The call has gone out for the Administration to bring us bold thinking, change, a new approach! Instead we have more of the same to contend with.
I read an interesting suggestion regarding getting banks and trust going again and the idea was to clear the debt that is essentially unpayable. Senior debt becomes equity and home mortgages get written down to no more than 80% of current value. The idea is that fake debt doesn't sit on the book pretending to be an asset. Fake debt is debt with no prospect of being repaid and mortgages that are about to turn into foreclosures aren't real assets at all. The banks want to keep the mortgages on the books to make it look like they have more assets. It is weird when banks start acting in public like school boys.
It will take a leader with courage to tell the banksters that their scheme is finished and taxpayers aren't going to save their hides anymore. I like President Obama's moves towards funding stem cell research, ending torture and closing Guantanamo Prison Camp, but on the economy he needs to get with the program and stop faking it.

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