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The short version of my current alternative proposal to the TARP remains:

  1. Normalize bank liquidity by allowing Fed member banks to borrow unsecured from the Fed in unlimited quantities.
  2. Have the Fed set term lending rates out to 3 months in addition to the Fed funds rate.
  3. Extend FDIC insurance to Fed deposits at member banks to keep any insolvency losses at the FDIC.
  4. Remove the cap on FDIC insurance to eliminate the need for money market funds.
  5. Declare a ‘payroll tax holiday’ and reduce social security and medicare payroll deduction rates to 0% until aggregate demand is sufficiently restored.

This would immediately end the current crisis.

Remaining issues include the increased demand for energy consumption as the economy recovers, and associated price pressures.

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8 Responses

  1. Warren dieoff.org goes into the reasons why I cannot support any of your proposals until we get hold of the energy tiger first. If the banking system implodes, people should still be able to eat under normal circumstances, but if the energy system implodes, people starve to death no matter how many banks are saved. After we have implemented your 30mph speed limit or ban cars altogether for large parts of our society will I really be concerned about the financial issue. Congressman De Fazio just told congress the Fed has awesome power in times of “emergency” that address some of your concerns and the president can give permission for the fed to invoke those powers and that could have happened already without congress, sometimes government is just too big already to know what powers it already does and does not have, its too big, the tower of babel must fall.

  2. ok, but the fed can’t do it, and the paulson plan probably won’t do anything either.

    i hear you on the energy issue, as you know

  3. Just read the “Bill”…Either the House and Senate are corrupt , or stupid.I guess now the best thing to do is to figure out how to arb. the new agency!
    With the money from the short euro long dollar trade!

  4. The USVI liqour PORK getting into the middle of a FINANCIAL crisis proves to me they are not stupid, warren and Mr. Masters got something really important lobbied into this bill, cheap liqour for us to party on while the losers back on the mainland sink! LOL! Warren never in a million years would I have thought you and mr. masters and your USVI lobbyist friends could have pulled something like this off, I salute you friend! Gordon Gecko was right, sheeple are meant to be slaughtered, they are good eating for the rest of us wolves!

  5. wish i could take credit but i don’t even know the people involved and don’t know who the lobbyists are for the vi.

    this is for a payment from congress that’s been in place for decades and needs annual renewal. it’s pretty much automatic, and the funds go mainly to service some vi debt that would probably collapse otherwise

    it’s a long story, but he US govt, in all innocence, has starved the vi for it’s share of federal spending for many years and destroyed the local economy. for example, wages are only about half the national average. This has put in place a process of adverse selection that has resulted in a population of largely those who ‘can’t get out’ and ‘drop outs’ from the states, like me.

  6. “it’s a long story,”

    I am one of the idle hands you economists want to put to work, so I have lots of time, if you do to I would love to hear the long story.
    I checked out a ton of books and read them about the VI and was surprised to find that several of the books said wealthy folks and white folk were disliked by many people on the islands, if we have a world that is descending into class warfare, how safe is it there?

    “but he US govt, in all innocence, has starved the vi for it’s share of federal spending for many years and destroyed the local economy.”

    I hear that echoed in so many places all over the USA.

    “for example, wages are only about half the national average. This has put in place a process of adverse selection that has resulted in a population of largely those who ‘can’t get out’ and ‘drop outs’ from the states, like me.”

    Well like my last girlfriend from ireland that was able to escape her forced catholic marriage, to all my other girlfriends who escape me and run away, I am looking forward to finally living somewhere that my girlfriend can’t run away and escape me but gonna have to put up with me wether she like it or not 😉 Truly paradise.

  7. 1) sounds dangerous b/c puts Fed on hook if cos fail – moral hazard issues
    2) dont know that fed has mechanism to do this, how would this work?
    3) answers 1 partially but just transfers problem/makes it larger
    4) not sure how much pressure this would put on FDIC if a big bank failed, but seems reasonable to prevent deposit runs; in terms of money mkts — we need those to provide liquidity to companies and financials through commercial paper markets
    5) fiscal nightmare and politically impractical

  8. 1. it’s just for fed member banks and govt/fdic (regulators) are already on the hook.

    2. open the discount window to any member bank in unlimited quantities

    3. makes no difference to the fdic. and they have unlimited funds.

    4. larger deficit, no nightmare as there is no solvency issue

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