Support an economic recovery plan which will work

by Asher Edelman

Dear Friends,

In April of this year I sent to you a recovery plan which I believe was even-handed, fair to all and which would have reduced the depth and duration of the economic crisis. This was and is a plan that leaves no one behind.

What has happened since?

Can we get back on a reasonable path now or do we have to live through similar consequences to those which evolved from the Hoover administration? The parallels are disturbing.

Let’s stop the favoritism and cronyism instantly! The administration has perpetrated some of the greatest financial frauds in history on the American people.

Witness Halliburton, our largest defense contractor, going offshore to a tax and regulatory haven yet continuing to get the largest share of the U.S Defense contracts of any  company in the world.

Witness the AIG scandal: Mr. Paulson and the administration were prepared to let AIG fail (as well it should have) until Mr. Paulson’s Goldman Sachs’ partners huddled with him on the problem. Suddenly, the view changed: AIG had to be saved. Close to $100 Billion of taxpayer money has been spent to save AIG and Goldman Sachs averted a loss of $20 billion. Perhaps the taxpayers would have been better served paying Goldman directly – the cost would have been considerably less.

It is time to  stop this elitist approach to saving the favored and focus on the total problem. The solution is clear: It will not make all right instantly or even quickly but will work.

Reality, not political reality, but economic reality must be the driving factor. In my April letter, I suggested that the $30 billion committed to the problem would not be enough, that the need was some 100 times—that non realistic hopeful number—yes $3 Trillion. As time has passed, the problems compounded; the mortgage crisis having become an across the board credit crisis, I believe the number to be closer to $5 Trillion. NOT $700 BILLION!

What we can do with the $5 Trillion is to support our capitalist system in a non-inflationary business like manner and make it possible for some financial institutions and the middle and poorer classes to survive and thrive again. $5 Trillion must be applied to fair market value purchases of debt—sub prime through prime. Institutions holding that debt can appear voluntarily  at the window or simply go under water. On average the government will buy debt at about 50% of face. Many financial institutions will have to shrink or go out of business (a product of past excesses); some will survive. All deposits up to $500,000 per account will need to be guaranteed. There will be plenty of room to effect those guarantees as the difference between 50%  of face on the debt purchased and the payments on the guarantees will still leave a profit for the taxpayer. Not one percent of inflation or taxpayer expense in this package.
The debtor must also be cared for. As the debt has been purchased at 50% of face value, it is now possible to reduce interest rates on purchased debt to a level that the consumer can deal with and still earn a profitable return for the taxpayer. The purchased debt would not be restricted to mortgages but would cover all consumer debt (interest rates are often at 25% for the credit card debtor). If we make it possible for the average man to survive he will live up to his obligations.

That is the American way. Over time the economy will become more liquid, fluid and prosperous. If we leave the middle class out and support only the elite again the economy will continue to falter.

Support an economic recovery plan which will work. Encourage your representatives and other concerned folks at every level to do the same.

Asher B. Edelman


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