Guest Post: You Want To Fix The U.S. Economy? Here's A Start

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

You Want to Fix the U.S. Economy? Here's a Start

A simple 8-point plan would restore both the banking and the real estate sectors, and end the political dominance of the parasitic "too big to fail" banks.

Craven politicos and clueless Federal Reserve economists are always bleating about how they want to fix the U.S. economy and restore "aggregate demand." OK, here's how to start:

1. Force all banks to mark all their assets to market at the end of each trading day, including all derivatives of all types, including over-the-counter instruments.

2. Allow citizens to discharge all mortgage and student loan debt in bankruptcy court, just like any other debt.

3. Banks must mark all their real estate to market weekly as defined by "last sales of nearby properties" adjusted for square footage and other quantifiable measures (i.e. like

4. Require mortgage servicers and all owners of mortgage-backed securities to mark every asset within each pool to market weekly.

5. Any mortgage, loan or note which was fraudulently originated, packaged and sold, including the misrepresentation of risk, the manipulation of risk ratings, fraudulent documentation by any party, etc., will be discharged as uncollectable and the full value wiped off the books and title records without recourse by any of the parties.

If a bank fraudulently originated a mortgage and the buyer misrepresented material facts on the mortgage documents, then both parties lose all claim to the note and the underlying asset, the house, which reverts to the FDIC for liquidation, with the proceeds going towards creditors' claims against the bank.

6. Any bank which misrepresents marked-to-market asset values will be fined $10 million per incident.

7. Any bank which is insolvent at the end of a trading day will be closed and taken over by the FDIC the following day, and liquidated in an orderly manner via open-market auctions of all assets, including REO (real estate owned).

8. All derivative positions held by the insolvent bank will be unwound immediately, and counterparties who fail to make good on their claims will also be closed, given to the FDIC and liquidated.

You know what this is, of course: a return to trustworthy, transparent accounting. And you know what the consequences would be, too: all five "too big to fail" banks would instantly be declared insolvent, and most of the other top-25 big banks would also be closed and liquidated.

At least $3 trillion in impaired residential mortgage debt would be written off, maybe more, and $1 trillion in impaired commercial real estate would also be written down. Derivative losses are unknown, but let's estimate it's at least $1 trillion and maybe much more.

If $5.8 trillion of fantasy "value" is wiped off the nation's books, that's only a 10% reduction in net household and non-profit assets, which total $58 trillion. Even an $11 trillion hit would only knock off 20%. If that's reality, if that's what the assets are really worth in the real world, then let's get it over with. Once we've restored truthful accounting and stopped living a grand series of debilitating lies, then the path will finally be clear for renewed growth.

The net result would be the destruction of the political power of the "too big to fail" banks, the clearing of the nation's bloated, diseased real estate market, and the restoration of trust in institutions which have been completely discredited.

Bank credit would flow again, and we could insist on a healthy competitive system of 250 small banks instead of a corrupting system of 5 insolvent parasitic monsters and 20 other bloated but equally insolvent financial parasites.

Those who lied would finally get fried. At long last, those who misprepresented income, risk, etc. would actually pay some price for their malfeasance. Criminal proceedings would be a nice icing on the cake, but simply ending the pretence of solvency would go a long way to restoring banking and real estate and ending regulatory capture by TBTF banks.

What's the downside to such a simple action plan? Oh boo-hoo, the craven politicos would lose their key campaign contributors. On the plus side, the politicos could finally wipe that brown stuff off their noses.

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bill1102inf's picture

#1, the banks would be insolvent immediately.

#2, why not let ANYONE borrow from the government and allow the loans to be defaulted. Lets give out $100,000.00 to everyone.

ElvisDog's picture

You're missing the point. Government guarentees of debt remove all responsibility from the banks for carefully evaluating a loan application. More loans = more fees, so anyone who can fog a mirror is approved. If the banks really had to take the loss for a bad decision, there wouldn't be as much bad debt swirling around.

Clueless Economist's picture

The only "clueless economists" are from the Austrian school of thought.


We Keynesians are all geniuses and Nobel Prize winners

SheepDog-One's picture

And its working so well that even the Keynesian overlords are saying 'Yep, we're *fail*'. Hey keep writting those NYT columns though, makes great parrot cage liner.

66Sexy's picture

Mail every US taxpayer  (and taxpayers ONLY) a check for $25,000. That would stimulate everything, would inflate assets, corporate bottom lines, bank deposits, and consumer goods.

TruthInSunshine's picture

Don't make it soooo complicated.

Everyone can just move in together.



This is not in jest: Real study by BLS:

U.S. Bureau of Labor Statistics

First Quarter 2011

  • Consumer Expenditure Survey: Do two live as cheaply as one? Evidence from the Consumer Expenditure Survey (HTML) (PDF)
optimator's picture

Better yet, mail every taxpayer a mini printing press and eliminate the Fed!

Ahmeexnal's picture

How about just a one point plan?



JW n FL's picture

can we instead roll our fat asses off the sofa and fall onto the Criminal, Treasonous, Lobby Whores and just Sit on them?


we will lack popular support to be sure!


if there is to be any sort of heavy lifting and or sweat inducing work.. the majority will be abstaining and watching where's Casey or who's swatting Murdock. if it's Not on Cable.. then they are not interested!


once again.. rolling.. at a slow pace.. their fat asses off the sofa.. and landing on.. the Criminal, Treasonous, Lobby Whores and then just having to sit on top of them.. while still leaning against the sofa with an even better view of the T.V. therefore allowing the cable news info to just wash over them like a warm bath..


thats fine, but anything more strenuous than that? forget it! you are on your own!


exercise is for midnite the first of the month! when they are out of food!


But here's some good news..


If they only get up off their fat asses to chase food! then when the food stamps monies get tied up in the Forced Austerity of the Poor Nation (Wall Street already has Trillions sitting, they dont need any more money right now) we may well see some movement out of the 59% of Americans that receive some form of Government Assistance.. or what about the employees of the Government?


No Worries! everyone with a Gun still gets paid! they have to keep you restless sheep in order some how! LULZ!!

Sudden Debt's picture

Any bank which is insolvent at the end of a trading day will be closed and taken over by the FDIC the following day

yeah... that would make... the FDIC... THE BIGGEST BANK IN THE WORLD!!


chunga's picture

Caligula style "capitalism" would never stand for this nonsense.

chumbawamba's picture

It's a nice fantasy, at least.

I am Chumbawamba.

chunga's picture

We won't follow the path of Rome. The Praetorian Guard is much stronger now.

chumbawamba's picture

Yeah, but this time around the plebes have firearms.

I am Chumbawamba.

dick cheneys ghost's picture

You had me at hello............

unununium's picture

Help.  This is so complicated.

I saw on CNBC that marking to market is an evil invention of the Obama administration, meant to kill banks and spread socialism.

I thought more accuracy was always better.  But these media reports make me worry that banks might fail if they have to mark their assets to market.  And I think that's supposed to be bad for me somehow.  Something about 'armageddon'...

  --Confused in USA

Fred Hayek's picture

That's kind of odd because didn't FASB sign off to "mark to fantasy" in early 2009, the early days of the Obama administration?

pepperspray's picture

Let's see the Paul Ryan plan on this one.

bigwavedave's picture

wont happen. there would be no more need to accelerate credit growth and no real reason to print. boring!

ElvisDog's picture

Too bad Charles Hugh Smith won't run for president.....

GoinFawr's picture

Too bad you didn't vote for Ralph Nader in '96, '00, '04, or '08; I don't see a single policy on that list that he wouldn't take action on tomorrow, if he were POTUS...

Jack Burton's picture

Interesting. I see a small problem with the ease of discharge of all mortgage and student loan debt via a bankruptcy. The availability of such loans would sink like a stone. Not saying that is all bad, but lenders would be strict in a sense few Americans alive today have ever experienced.

Pop goes what is left of the housing market!

Pop goes the higher education bubble!

Up goes unemployment by 5% minimum

SheepDog-One's picture

You mean people asking for a loan would have to put up collateral, and have to show the loan is very likely to be repaid?

Marc45's picture

Yes, no bank would normally loan money to a student.  Student loans are simply another social program.  Without them, the only students able to afford a good college would be scholarship grantees and fortunate sons (think GW Bush).  Student loans are not dischargeable through bankruptcy.  You can argue that college students should not get special treatment but I think it's a positive investment in society (unlike many other social programs).

Note: I would not have been able to afford the college I went to without student loans and now I run a business employing 50+ people and I pay a lot of taxes.  I think it works.

Idiot Savant's picture

Student loans are simply another social program.  Without them, the only students able to afford a good college would be scholarship grantees and fortunate sons (think GW Bush).

I would argue that tuition rates wouldn't be as unreasonable if it weren't for student loans. Student loans are a scam to enslave young Americans before they even start working. End the loan programs and watch tuition rates fall.

andyupnorth's picture

+1. Obvious reasonning is required for the brainwashed folk.

earnulf's picture

Not So that people would not be able to afford a "good" college.   There are still a couple of "work your way through" colleges out there doing a bang-up job.   College of the Ozarks and Berea College come to mind and the local state colleges are expensive, but not completely out of reach, at least the one's that don't have a major football program.

I do agree that banks would be reluctant to loan for "student" loans, very difficult to guage future earnings based on school work.   But maybe it would also lower student levels and force colleges to trim their "offerings" to studies that actually produce effective students who can help the workforce.

The point is that we have to stop running up 100K debt before the person even enters the workforce.   Talk about a millstone around your neck for the rest of your life

ceilidh_trail's picture

GWB got decent grades in college. Algore and JohnKerry the ketchup man did not do so well. The Oboy? Who the hell knows- I bet not so good or he would have publicised them...

11b40's picture

You can chart the rise in college tuition's to the increase in the value and number of student loans.  'Education' costs have been far outstripping the rate of inflation for 20 years or more, while college campuses get evermore elaborate & extravagant.  Staffs have become bloated, along with salaries and benefits, while "value delivered" declines. 

I worked my way through college.  No loans, no debt.  It took me 8 years, counting the 2 I gave to Uncle Sam, but I did it.  Now, I personally know young people who have 80K plus in student loan debt with meager realistic chances of making that much a year.  They will be trying to pay off that debt & the carried interest for decades.....just another form of debt slavery with one exception.  The is the creme de la creme of debt slaves - well educated and good prospects for jobs that will allow them to service the debt load.  Bankers bonanza!

GoinFawr's picture

I notice no one here has mentioned anything about going Finland's or Germany's route on post secondary education. I am Jack's utter lack of surprise, seeing as their obvious successes blatantly contradict all of the narrow-minded Amerhetoric.

Do you lot ever think to look past your own screen doors?

As a rule, a decent education produces a net benefit for the society that provides it. IE. EROI is a positive number.


kridkrid's picture

Good and Good.  By propping up housing and higher ed, working class stiffs are getting priced out (or are being forced into debt servitude to chase the farce called an American dream).  End all supports for everything.  Let rational(ish) people make rational(ish) decisions. 

centerline's picture

As if none of that is going to happen anyhow?

I do see great moral hazard though in any sort of categorized debt jubilee.  For any sort of real economy to function, it must honor hard work and prudent behavior over pure leverage and reckless behavior.  The mindset right now is too "fiat."


MachoMan's picture

True...  my only question is, all things considered, can an elite group essentially ensure its status in practical perpetuity?  There will be a great many things that get sorted out in our deleveraging and the changes to come...  but, if there is a relatively unscathed portion of us that was also directly responsible for the calamity, then any legitimacy of the exercise is lost... 

I suspect that the environment will be more moral and functional in the future for most people...  but, being a relative measure, that's not saying much...

Raymond Reason's picture

@Jack.  Yes availibility of such loans would sink like a stone, debt would have market price other words, capitalism.

On the other side of the equation, getting rid of the FDIC (although the author didn't mention this), would cause depositors to evaluate the banks where they deposit their money.  In other words, capitalism. 

jerry_theking_lawler's picture

negative. doesn't the .gov back all student loan debt now....thanks Uncle S....

snakeboat's picture

That's no problem, that's the ONLY solution...   True GDP is at least 12% below what is currently reported.  The sooner we recognize this and get over it, the better for you, me and all our kiddos...

knowless's picture

and eventually higher education will be open to the adept at cheaper cost, instead of the inept at exorbitant..

SheepDog-One's picture

What, you mean peasantry should be even near the same playing field as the 400 elite families that hold 50% of the entire worlds wealth, and have actual rights and ability to discharge debt that THEY have due to the criminality of the elites? AND us criminal banksters would be charged and sent to a dungeon for our massive crimes??

Im shocked! Randolph, hand me another Perrier, Im feeling faint! Here ya go Mortimer...relax! We got our bunker built.

Dr. Engali's picture

Want to fix the economy.

1) Enforce the laws and prosecute the criminals.

2) No bail outs period.

3) End the fed

4) Fire congress and the sitting administration.

5) Return to sound money



traderjoe's picture

Without the end of private debt-money creation through fractional reserve banking and the privately-held Fed - nothing will be fixed. Why does a sovereign country borrow its own money at interest from private corporations?

I liked your list better than his.

Raymond Reason's picture

Why stop with fractional reserve banking?  Why not get rid of banks altogether?  It doesn't mean there wouldn't be credit.  The whole idea of banking is shit.  When you loan money, you require collateral.  When you loan money to the bank, you get nothing.  They take your money, and loan it with collateral.  There's the fleece.  A bank should broker your loan, and forward your collateral back to you.  If you don't have enough money to make a loan, well you hire the bank to lock it up until you do.  That would be real banking. 

chumbawamba's picture

"4) Fire congress and the sitting administration."

That's called Revolution.

In fact, I propose the Final Amendment to the Constitution of the United States of America:

Amendment 29: This Constitution is hereby Expunged, and Open Revolt is declared.  All People who have taken an Oath to this Constitution are voided of any power, privilege, position or title therein granted or gained, and are to stand down or consent to becoming a casualty statistic.

I am Chumbawamba.

StychoKiller's picture

Amendment 29:  "Congress shall make NO Law abridging the freedom of Production and Trade."

ceilidh_trail's picture


Thisson's picture

Some of these points are not thought through very well.  For example, allowing people to discharge mortgages in bankruptcy is absurd.  These are secured debts, not unsecured debts.  Only unsecured debts are (and should be) dischargeable.  You want to discharge student loans in bankruptcy, that's fine, but don't mess with a creditor's right to collect against secured property because that undermines the capital structure of our economy AND it affects pricing (it would make mortgage loans much more expensive).


Woodyg's picture

Actually after the MERS fraud those loans aren't secured - not if the banks have to follow the rule of law like the Little People.