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Financial Aspirations
A Brighter Tomorrow
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Financial Aspirations
A Brighter Tomorrow
Hello world!
Welcome to Financial Aspirations. This blog will provide an evolving discussion of the macro economic crisis we in America face today. We will define the crisis in general terms and we will suggest solutions, to the extent they exist, we will also make comments on public and private leadership responses to the situation and we will request reader input into this page in all areas of discussion. If at any time you wish to contact me, please feel free (my name is Jerry Baldy and my e-mail is gbaldy@cox.net). Please do not e-mail my gracious web-page host about advertising or any other business inquiry as they are not yet positioned to accept or entertain any such inquiries. Please contact me on my e-mail about these matters.
Let us begin.
The situation we have is an economy that produces approximately 11 Trillion dollars annually of GDP and has approximately 70 Trillion dollars in debt and growing (about 10 trillion already spent and about 60 trillion promised in the form of Baby Boomer Social Security, Medicare and Medicaid obligations). There is no way the economy itself can support 70 Trillion dollars of Debt. In addition, the economy presently is in a severe contraction do to both governmental and banking mismanagement and corruption. This current set of circumstances has resulted in HUGE government bailouts (700 Billion Tarp ,Paulson/Bush banking system bailout and 797 Billion Obama economic stimulus package and 500 billion for current budgetary considerations). Thus yielding an additional 2 Trillion to the 70 trillion aforementioned.
A COMMENT
There will be some appetite for Treasury issues in the short run (the additional two Trillion referred to above). The mid term (additional crisis spending) and longer range appetites (Baby Boomer Social Security, Medicaid and Medicare) for U. S. Treasuries are more questionable and undoubtedly will be more, much more, expensive with yields paid much higher and revenues received much lower. At some point perhaps there will be currency devaluation. I never thought I would say that.
Unless we devise a plan that will satisfy world markets that we can successfully address this Financial Crisis and the massive inflation that could follow, very unpleasant consequences will occur. We need a plan that is based in reality (not the program we are engaged in now, IT WON’T WORK).
Suggested Partial Solution
A successful solution will require an understanding that a significant Federal Reserve and Treasury partnership is mandatory (a Keysian/Friedman partnership).
This Partnership is critical because the economy is fragile and continues to weaken and cannot grow us out of this set of circumstances. Further, confidence has been essentially lost in all governmental institutions and elected representatives with the exception of the Fed and Treasury.
The Treasury Department ( with Tim Gietner’s leadership along with Larry Summers and Paul Volker’s experience and intellectual horsepower) teamed with the Federal Reserve (with Ben Bernenke at the helm) have the human resources and balance sheets to lead us back to the path of prosperity.
The Feds’ balance sheet should be used in a manner that maximizes monetary policy while utilizing the Treasury department as a partner.
An example of this partnership would be for the Fed and the Treasury to partner in a model that houses some Treasury short term paper and some Fed assets that pay a much higher rate of return thus creating a spread. This model would be used to support troubled commercial banks as a guarantor of new loan activity and be called the Fed/Treasury partnership. As part of this guarantee a couple of terms and conditions would be enforced.
First, the troubled bank would cordon off its toxic paper all of it. Proceeds from toxic paper would be used as a further cash infusion and/or set aside for additional capital requirements into the bank. The troubled mortgage/other assets themselves would be cordoned off and the asset valuation would be left unadjusted, no mark to market valuations. Assets valuations would remain at their cost basis on the banks books and would be represented on the balance sheet as troubled assets to be worked out. Asset valuation would take place at a more tranquil time and environment between the holding bank and appropriate counter parties and/or regulatory entities. Mark to Market solutions financing would be performed by the policies of copyright #TXu000496588 (referenced later in the blog). With the toxic assets cordoned off the Fed/Treasury partnership guarantee model is instituted.
The Fed and Treasury will determine and guarantee a sufficient amount of new loan levels to be made by the troubled banks to obtain stability. Financial support for the troubled bank guarantee is housed in the principle portion of the Fed/Treasury partnership model. Remember the principle amount of the model consists of interest bearing instruments contributed equally by the Fed and Treasury that have a principle amount equal to the agreed upon stimulation amount required to stabilize the troubled bank. Management of the partnership model “principle portion” can be managed by the Treasury or the Fed.
The interest portion of the Fed/Treasury partnership model will be used to support strong banks in their lending/expansion activities or any other economic endeavors the Fed or Treasury see fit. Management of the interest portion of the partnership model can also be the Fed or Treasury. The result of this Fed /Treasury partnership model would be to effectively nurse troubled banks back to reasonable levels of health while simultaneously supporting healthy banks by giving them the ability to expand and create a more balanced banking system. This is accomplished by the Fed/Treasury partnership accepting a contingent liability (the principle in the Fed/Treasury partnership model) not necessarily a cash disbursement. The only actual cash outlay Fed/Treasury partnership incurs is the interest portion of the model.
Other simulative possibilities from Fed/Treasury partnership proceeds could allow mortgage warehouse lines for Jumbo’s (a secondary market) to be reestablished and finance mortgages as well as other asset classes to be securitized once again. These activities would have the beneficial effect of attracting private capital back to the markets at an efficient cost basis to the Fed/Treasury. This plan would be the beginning of managing the overall banking system back to health. However, this is an evolving process and the above mentioned policies should be given some time to take hold and be re-evaluated for further action. These suggestions would begin the credit thawing process and would have a calming effect on financial markets.
In addition to freeing up bank lending and asset securitization and eliminating the need for immediate Mark to Market accounting for toxic assets and reinstituting a secondary market for non-conforming mortgage loans (Jumbo’s and other collateralizations), the model can stimulate the lower economy.
To see how this would work in all it’s detail see copyright #TXu000496588. The title of this copyright is Monetary Policy Maximization Model which I authored in 1991 to prevent what is happening today.
We will talk more about how we got here and some permanent cures for the economy (via a sustainable future economic policy) in future conversations. Sooooo that starts things off and I look forward to hearing from you.


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02 2009
by webmasterposted in Uncategorized Edit1 Comment

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23
02 2009
by webmaster posted in Uncategorized Edit1 Comment

Search for:
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February 2009 (1)
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Uncategorized (1)
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Hello world! 23 02


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