Before crafting a solution...we all had to understand the problem. Now I think many of you do....
For the past 20 years we built an economy based on a Ponzi Scheme of ever expanding debt. At the end, we were borrowing simply to service interest and not purchase a thing or produce goods and services. Those who saw it early knew it couldn't last..... and now more and more are waking up to the problem.
Most of us benefitted from the Ponzi scheme to one degree or another. Better schools, bigger homes, nicer vacations etc.... Dimissing the details....we are where we are..... and we must craft an equitable solution to this massive ponzi scheme which we are all part of or we will breakdown into social anarchy. Dealing with the problem is not too difficult and not much different from unwinding the Madoff ponzi scheme.
The following is simply a back of the napkin outline:
The first thing we must do is protect the dollar. The dollar is simply the most senior debt obligation of the United States to the people of America and the World. If the dollar is not sound....WE ARE ALL BROKE!!!!!!!!!!
Everything else is up in the air as everything we own is measured in dollars.
Just like a corporation with layers of capital structure....in any bankruptcy the most senior debt is paid first and as we go down the capital structure we keep paying in order of priority until there is nothing left to pay.
PROTECT THE DOLLAR....
For a country, the most senior obligation it is its currency. Then its other debt obligations....Then its entitlements and so forth. We as a nation must protect our currency or we have nothing.
PROTECTING THE DOLLAR IS EASY.......
America as a nation has a tremendous amount of wealth in natural resources and productivity backing up the dollar. If we simply repudiated all of our nation's government bonds, senior and subordinated, and repudiated all of our entitlement obligations...the American dollar would be the strongest currency in the world.
At least by protecting the dollar....those that were virtuous and saved, at least up to FDIC limits, would be rewarded and the rest of us who took risks will have to bear the costs of those risks and we would simply start over.
In all likelihood, however, not only would we have a strong dollar but we would be able to continue further down America's capital structure and save much of our debt obligations as well.
CLAW BACK ALL PAYMENTS TO INSOLVENT INSTITUTIONS
In order to bring equity, fairness, and confidence back to our society....
The trillions of dollars we have recently paid to insolvent banks and bonuses to executives is obscene. Insolvent institutions in America go bankrupt and don't give their executives millions of dollars in bonuses unless those executives like looking at society from behind bars. How can you reward one small segment of the population for bad behavior and destroy the rest of the population for the same behavior???
Every dime of that money given to insolvent banks should be used to start a new bank with fresh capital that everyone can trust. Such banks would attract capital at a rate like we have never seen before and likley be the strongest financial institutions in the world. It does not have to be a single institution...it could be multiple banks creating competition right out of the gate but each would be well capitalized and banks the world can trust.
A NEW BEGINNING
The old defaulted debt would go into a pool like the RTC......any proceeds from the sale of that debt would be used to capitalize the new banks.
After much of the current business and population have restructured to a new capital structure, the new banks could start making responsible loans to those worthy and enterprises that could satisfactorily cover debt service under the recapitalzed system.
After the inevitable contraction of our economy, we could start growing again... on a base that rewarded those that behaved responsibly and punished those that took undue risk.....instead of Wall Street and politicans owning everything and Americans owning nothing in a very depressed society.
Ask yourself, why is any bank too big to fail......how hard is it to start a new one???.... Unless of course you are a bank on Wall Street and you have America's politicans on your payroll.
Wake up America....the solution is easy....it is just that Wall Street, the Media, and your politicans don't want you to know!!!!!!!!!!!!!!!!!!!!!!
Personal responsibility is what made America GREAT!!!!!!!!!!!!!!!!! It is time for all of us to share in that responsibility and make America GREAT again.