Imagine ...

Warning … This will not be as profound as John Lennon’s melodic journey, but it may be worthy enough to encourage us to clear the cob webs, vigorously sigh, and think about “our” democracy, “our” capitalism, “our” American style of strength as survivors and innovators. Although some of us may have privately faced seemingly insurmountable challenges in our personal lives, as Americans, we have not faced, before, the combined challenges we are currently staring down. If you add up the articles in a single day on “individual issues”, about which we are concerned enough to write, it would be frightening .. Perhaps paralyzing. I suggest you don’t do this. I have done it. There is no productive reason to share the number. Less productive, to express the profound stakes at risk. We all know, what we’ve got goin’ on. Surface generalities are all, most of us can handle. Trust me. I include myself in gravitating to this veil of umbrella level knowledge. All of us sharing in our concern, our hope, but for the most part, offering no real solutions.

But … relative to the financial crisis that ensues, allow me to dip my toe, briefly. If for no other reason than to exercise my right as a fortunate American, to free speech, free thought, and free press.

Imagine your government fulfilling a different role, than the one we have cobbled together out of desperation, fear, political rhetoric and good intentions. Imagine your government becoming a facilitator Vs a participant. Aiding Vs directing. Balancing Vs pushing. Watching to prevent catastrophe Vs over regulating to thwart innovation. Imagine your government standing up on the 8th count fully conscious, clear headed, driven, angry - not only willing to stay in the fight, but solely determined to win the fight. Imagine your government, standing up, suddenly, while listening to the count, 9 then 10, with a full acknowledgment of our opponent, along with a thorough and cunning understanding of our own vulnerability.

The only way to defeat the opponent is to transform our vulnerability into strength through perseverance. Use the anger we have toward our opponent, to fuel our transformation and eradicate our vulnerability. In essence, concentrate on strengthening our weakness, until it disappears - rendering our opponent, defeated and inconsequential.

The opponent is the greed driven American financial markets, failing to “self regulate” and act responsibly. The resulting vulnerability is delusion and unemployment : The number of unemployed, in May 2009 increased by 787,000. Bringing the total to 14.5 million, an unemployment rate of 9.4%. Since the beginning of the recession in December, 2007 - the number of unemployed persons has risen by 7.0 million and the rate of unemployment has grown by 4.5 percentage points.

This is staggering.

Unemployment is the problem, people. TARP, PPIP, government influence on salaries/bonuses, government management of private enterprise, and buyouts that are forced by our government to avoid failure, consumer panic and market melt down - has not and will not solve the problem. These tools may not have created the current and rising jobless rate, but they do absolutely nothing to stem its growth.

Paulsen did not want the financial collapse to occur entirely on his watch, so he prolonged the inevitable failure, until he left his post. Paulsen gave us TARP. Bernanke will escape the negative legacy as well. He will either be re-appointed by Obama, which will give him the opportunity in terms of time, alone, to be the guy in the room when the problem was finally solved, or he will be replaced, before the crucial fall actually occurs. He supports TARP. Bernanke has been generally non creative in his thinking about financial reform and undisciplined in his guidance on financial behavior. Timothy Geithner and Sheila Bair need to “do something” in their current roles as Treasury Secretary and FDIC Chairman. They give us PPIP (Public-Private Investment Program). PPIP is designed to fortify private investors’ willingness to buy toxic assets due to robust government guarantees against loss, to mitigate risk. Turns out private investors do not want to deal with the government, nor can they figure out how to ever pull an asset out of the over flowing hat of bad loans, default swaps and failed derivatives.

PPIP is failing. Private investors are not buying these assets. The toxic assets continue to be debilitating liabilities.

Toxic Asset. This is such an obvious oxymoron. We can’t even call them what they are … worthless.

In order to win, we need to first understand why we are loosing. Credit needs to flow, consumers’ need to feel confident enough to pursue prosperity. When we believe we can succeed, we will spend, take risks, grow capital, and move swiftly with forward momentum instead of stopping in the midst of stagnated fear.

We need jobs ! Without work we can’t feed our family. We can’t see a doctor. We can’t buy a car, and we can’t pay our mortgage. Get it. Without a job, we have no confidence. We have no forward momentum. We stop. Businesses fail because no one is coming through the door.

What would we do differently now, if we could emerge unembarrassed and unscathed by what we have done in the past. Rather than let TARP funds continue to sit in the safe at banks … I suggest the following :

1. Pull back TARP and PPIP funds from the financial institutions. Any government issued $ that have not, to date, been used to fund loans … should be pulled back.
2. Create an American Restoration Fund, for citizens and growth businesses. Place TARP $ in this fund.
3. To the banks, issue a directive/regulation/law – call it what you will, as long as it is enforceable … For every .5 % point reduction in the unemployment rate, banks must activate X % in new loans to consumers and businesses.
4. To the consumers, use TARP funds to bridge income more generously. Retrain the displaced worker in new fields, giving them relevant and marketable skills for current jobs in growing business categories.
5. Rather than enable government to be an active participant in the growth or failure of private enterprise, use government only to create an environment that facilitates growth, steward fair, prudent and lawful financial principals and productively assist the citizen base.

If TARP funds are redirected this way, we will begin to turn the corner. The current financial problem seems to be that, the balance sheets of banks are still heavily weighted to a loss. All of the taxpayer aid has not shifted the asset/liability weight on the balance sheet to a reasonable level. The liability of bad loans continues to negatively skew the health of the bank. If banks are forced to make more loans, concurrent to the reduction in unemployment, then over time, the liabilities of the past will become a smaller % of the overall loan activity, which will then reclassify the bank as “solvent” or able to pass the proverbial “stress test”. Government is encouraged to focus its resources in creating jobs. If they are successful in doing that, then banks will have to respond by supporting businesses and consumers with approved and fair credit. Risk will be balanced at the appropriate level .. More jobs, less defaults, more responsible spending, higher numbers of profitable businesses. Force banks to do what they know how to do, responsibly.

6. Let private enterprise innovate, take risks, succeed, grow.
7. Create opportunity and stability for citizens.
8. Keep the government out of private enterprise. Give it back to the people.

Imagine …