A SOLUTION TO THE ECONOMIC CRISIS OF 2008:
Essentially the economic system is a highly leveraged house of cards that is beginning to collapse under its own weight and the actions currently being taken by governments are simply propping it up with more cards, with more borrowing = more leveraging. Their actions may be sufficient to temporarily keep it from collapsing but unless the pyramid is significantly deleveraged it will inevitably collapse.
Allowing the collapse to occur instead of taking action would perhaps be more severe in the short term but it would certainly deleverage the system and likely lead to a swifter recovery and much less pain in the long run. The basic problem is far too much borrowing (leveraging) and in that the government is the main culprit.
The main fix must be to ban outright or regulate most of the derivative instruments which allowed to house to be extended higher than its weight could bear. And to reduce the national debt and government borrowing against the future to an equivalent equal to the real growth in GDP. But that of course would mean that all the super rich who profited from the overleveraging would lose out so that is unlikely to happen to the extent necessary to produce a healthy stable and sustainable economy.
First, let all the banks that have mismanaged their assets fail and go through bankruptcy. The argument that the whole economy will collapse is nonsense because the Fed can step in and become the bank for everyone. It has zero problem with having enough money to lend. To immediately solve the credit crisis simply let the Fed which has unlimited funds become the lender of last resort to everyone in the country from businesses to individuals. That is the myth, but really they are being propped up because of the super rich who would lose out if they weren't. The Fed could easily step in a make all the loans they do with no problem at all as its money is endless. If they were allowed to fail and the Fed filled in for them that would quickly solve the credit crisis and things could start getting back to normal. That is the way the market is supposed to work - the incompetent fail and that solves the problem. US gov solution is to reward failure by making taxpayers pay for the loses of the incompetent.
The Fed can give loans (sound loans only) to any reasonable risk at a reasonable rate provided real collateral is available. Eg. not corporate stocks or bonds which could become worthless anyway if the company fails, but actual physical plants, properties etc. which could be sold in case of default. That way the taxpayers cannot lose and will actually gain on the interest on average.
This solution has many advantages. It is simple in concept and directly and immediately incents investment in the future which is what is needed for a strong future economy rather than spending. And the government can directly influence future developments by preferentially providing loans to 'green' and high technology businesses with maximum projected future benefits. Also by adjusting these interest rates and the amount of loans made the Fed has a great deal of control over the economy as a whole.
The solution to the economic crisis is really rather simple. Just let the banks fail while the government issues credit to all creditworthy borrowers for real collateral to fill the gap and keep the economy going. Only those who took bad risks will lose, not the taxpayer and not sound institutions and banks of which there are many. In addition let the economy contract as it should to more sustainable levels where it produces things that are actually needed rather that the myriad of unnecessary consumer goods and luxuries which harm the environment and use up energy resources.
It is very simple to implement, will work without a doubt and actually will make money for the taxpayer when the loans are repaid as they will since they will all be secured by real property. If that had been done promptly last year the economic crisis would have been over by now and we would be well on our way to a stable long term sustainable economy.
As it is we are trying to solve the problem of debt by recreating it. A huge collapse is nearly inevitable and with it the future of our country which has been caused by the greedy megarich. I foresee them being guillotined in the public square if the masses ever figure things out.
There should be absolutely no spending stimulus. That is the worst thing that can happen, as overspending on credit is the root of the problem. The current large contraction in consumer spending is absolutely the best possible thing that can happen and it should be encouraged because now consumers are buying more of what they actually need rather than discretionary spending on things which they don't need and which just depletes non-renewable resources. It also causes the companies that produce the essentials to grow stronger and those producing frivolous items that are not really needed to grow weaker. That is exactly what we need for a sustainable future. A prime example is the sharp decline in gasoline which is entirely positive as it is a significant elimination of unnecessary use of declining oil reserves.
So all in all the current economic contraction is absolutely the best and most natural thing that could be happening. Let the chips fall where they may with no bailouts and the healthy businesses that produce what the future needs will survive. Meanwhile the government can easily keep the entire economy from collapsing by providing credit to anyone, individuals and businesses alike, who is a reasonable credit risk.
Those workers who lose their jobs are by and large those who are performing non essential services. They will receive unemployment benefits while they are retrained to work in essential jobs. At that point everyone can work much less of the year, receive much less money but have equal spending power for the much fewer goods that are the essential ones rather than the frivolous and unnecessary conspicuous consumption on credit that is ruining our country.
The result is that the country as a whole will be much closer to a sustainable society and a sustainable stable economy as it will use much fewer natural resources.
the optimal solution is to let the credit house of cards collapse under its own weight globally down to reasonable levels with enough credit ensured by having all central banks provide sufficient loans to all reasonable risk borrowers to keep a reduced economy going, and to secure those loans with real collateral with real value such as property so the taxpayer can't lose and will actually profit.
The result is a reduced leaner more efficient economy that produces only necessary goods rather than all the unnecessary consumer goods the previous economy depended on. That is better for the planet and precisely what is needed for a sustainable long term economy with minimum use of non-renewable resources.
Thus the current economic collapse is the best possible thing that could be happening. It is the natural global system attempting to reach a sustainable equilibrium on its own. All bailouts and interferences are simply going to perpetuate the problem and make it much worse in the long run.
However since the rich run the world (1 dollar 1 vote) this will not happen. They will lever up again and continue to loot the global economy until the collapse is cataclysmic, final and ushers in a new dark age.
As an example, everyone says that the housing crisis precipitated the economic collapse. It did trigger it certainly, but the lesson here is simple; there were far more houses being built than actually needed for people to live in at the prices they were offered. That is essentially why prices collapsed which is exactly what should happen. The solution is not to build more houses, nor more unneeded cars (there were far too many of them too) etc. That will simply create the same problem over again.
As I've said before the basic problem is that the US economy is efficient enough to produce far more than people actually need with far fewer workers than the employment force. Thus the economy had to produce all manner of unnecessary goods to fill in the gap and give everyone a job, but this won't work because it unnecessarily depletes natural resources on a massive scale.
The solution is everyone works far fewer hours to produce only the necessary goods and both people and the planet win in that scenario. Man must live in harmonious equilibrium with his environment like a normal body cell does, not be a cancer cell that insists on maximizing its growth at the expense of everything else, and eventually destroying the body it grows upon, and itself in the process.
Comments welcome - especially interested to know why people think this wouldn't work (except for the political reality that the US oligarchs would lose out big time. The whole idea of the 'bad bank' idea is for the government (you the taxpayer) to buy the oligarch's worthless assets for more than they are worth so they won't lose on them.).