Thursday, February 5, 2009

Letter to Congress

Dear Congressman,

This letter is written in regard to the Federal government's response
to the current economic crisis.

The most logical solution to the current financial crisis has nothing
to do with recapitalizing the banks, placing toxic assets in a bad
bank, or even guaranteeing toxic assets. None of these solutions
strike at the heart of this matter. Instead, a more logical approach
would include:

1. Capitalizing good banks and breaking-up the good assets of bad
banks. Stock holders of the bad banks would receive small portions of
shares in the new good bank. Their remaining shares would become

2. Creating new banks which have borrowing power to swallow up only
the good assets of bad banks. New banks would bid on the good assets
from the bad banks. Later, shares would be sold to the public in an
IPO. The U.S. government would be the main beneficiary here.

Regardless, bad banks should not be rewarded with additional government
monies. While there are some "feel good" measures like limiting
executive pay or company trips, these initiatives fail to reach the
heart of the issue which is poor management, short-sighted business models,
and greed. It should be duly noted that the people responsible for making
these terrible decisions that put their companies, investors, and now taxpayer
at risk were the ones to benefit the most. Ironically, now that these
institutions are falling apart these individuals are still making business decisions! Bank of America could well be the poster child of this debacle.

The current stimulus plan has several provisions that must be removed.
First, the notion that debtors should be able to re-negotiate mortgage
debts, or have a judge adjust mortgage amounts is a poor idea. People
should pay their debts whether the there is an ARM, ALT-A, or Sub-prime
loan. While we know there are some difficult decisions to be made
regarding the bankruptcy of these individuals, this mess was not
created by most Americans. Therefore, most Americans should not be held
accountable for the problems facing creditors or debtors. A loan is an
agreement between two parties. It is either the responsibility of the
creditor the debtor to work out a loan arrangement, not government.
Encouraging companies to lend more could in this time period in the
end, could exacerbate the problem.

Congress created the Federal Reserve, and while it is a quasi-public
institution, their current role needs complete transparency and
disclosure to the American people. The notion of loaning money without
disclosing collateral is at the bare minimum suspicious, and at most
could be considered an act of treason. Anything less than full
disclosure would be against the principles that our great nation was
founded upon. There is no doubt that we are in un-chartered waters. I
appreciate your diligent efforts to look out for the best interests of
the American people.

Respectfully Yours,
Brian A. Davis


DCNorth said...


Admire your stance of going and writing your politicians. Most people just complain, but I think that it's important that the constituents let their elected officials know!


Tiger Coach said...

Dear Readers,

Here is another Yahoo article which supports my article to the Congressmen...

"A government watchdog has concluded that the federal government gave financial institutions a $78 billion subsidy last year by overpaying for stocks and other assets as part of its massive Wall Street rescue program.

In a report scheduled for release Friday, the Congressional Oversight Panel for the bailout funds found that in some cases the government paid dramatically more than the actual value of the stocks at the time of the transactions.

Financially ailing insurance giant American International Group, deemed by the Treasury Department to be too big to be allowed to fail, received $40 billion from the Treasury for assets valued at $14.8 billion, the oversight panel found."
For a complete story, please click the link below...

boom and doom said...

Tiger Coach,
I'm not sure how your two approaches would work. In the first approach, how do the good banks get capitalized? With more government money? The approach should have been to do something similar to the Resolution Trust Corp. for the S&L crisis. As the banks failed, an RTC type entity would take in the assets and then sell them to good banks who wanted to buy the assets. This approach seemed to work well, and I believe the RTC actually made some money (i.e., no taxpayer cost). However in this crisis, for whatever reason, this approach was not taken. My guess is that the bank lobbyists are more powerful than the S&L lobbyists were, and no one wanted to wait the five years it took to work through the RTC fix. It may also have to do with the way banks are chartered vs. S&Ls, but I am no legal expert on that side of it. Now don't confuse this with TARP. TARP is (was) not intended to keep banks from failing. It was to free up the credit markets, which it has done, albeit not perfectly. Now the Obama administration wants to use the second installment of the TARP funds to set up some type of good bank/bad bank scenario which I have not been able to understand how it will work.
Your second idea is not clear to me. Do you want the government creating new banks? That would be a deeper step into communism, more so than this socialistic approach we are in now. I would think twice before the federal government starts creating banks. You see what they have done with the Fed.

Take care,

Tiger Coach said...

To so much as a matter of policy, but more or less a matter of thinking outside the box... that seems like the best way to work this current pickle.

Some of the ideas I have heard are outright crazy... from judges re-negotiating mortgages, consumer loan forgiveness, and even another plan to create the bad bank...

The last idea needs additional consideration since the banks have never clean as to the amount of "toxic assets" (isn't that an oxymoron) have on their books. Since banks still utilize mark to market accounting, as opposed to current book value, this could well be a multi-trillion dollar question.

During the S & L Bank Bank scenario to which you make reference, estimates of bad loans were off by nearly 80%... Should those figures hold true, we are looking at a mess.

I would encourage any and all readers to contact their representatives about the bailouts, TARPs, stimulus plans, and any other ideas. In the end, we are the ones accountable for all government debts.