Listening to the financial talking heads yell and scream about what is wrong with the economy, should the US Government bail-out the Big-3/UAW folks, should we distribute wealth, should we allow employees to lose the right to a secret ballot, or should everyone be guaranteed a living wage (yes, I heard that proposition being thrown around on MSNBC)?
To me, its unbelievable that we don't understand how we got into this problem and how we can get out of it without mortgaging our future. Let me see if I can explain it one more time.
First, we got into this problem because of over 30 years (beginning with the CRA of 1977) of government attempting to social engineer the US society. The Great Society was an extension of the FDR "New Deal", and when it didn't move fast enough, liberals figured out that they had to write specific legislation, not blanket conceptual, "feel-good" bills.
Second, the Federal Reserve has been willing to use its monetary policies via the FOMC interest rate actions to attempt to stop the capitalistic cycles that this economy goes through instead of helping us to understand that we need to prepare to for "years of lean."
Third, legislative welfare from those entities being regulated to get Congress to look the other way has caused the whole financial crisis ball to get rolling.
So what are the solutions?
1. Revoke the "mark-to-market" ruling and Sarbanes-Oxley Act of 2002 immediately. This was not regulation, but extremely OVER-REGULATION that were prime example of LOUC (law of unintended consequences). Cost: $0
2. Backup all US depository accounts with FDIC-type insurance, not just the first $100,000.00. Cost: $0 since insurance paid for by insured institution based on credit rating.
3. Demand normalized mortgage underwriting standards of 10-15% down payment, income verification, and load-to-value limits. Cost: $0
4. For mortgages already underwater (a negative loan-to-value ratio), extend the mortgage term and stabilize the interest rate in exchange for future equity participation. Cost: $0
The problems are not impossible, nor are the solutions if one just stops to think and doesn't panic like the US Government did in October. The Bush-43 administration while it inherited the seeds of this financial crisis, they did everything possible to germinate and grow it into the global mess it is now. All US political parties are to blame as much as greedy corporate managers and incompetent state and local politicians who both couldn't manage their ways out of a wet paper bag.
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