Ability to comprehend exponential expansion should be the first test for any political candidate. When the world embraces wage inflation, the US minimum wage of $6.55 at 100% inflation will be over $6,700/hr in just 10 years. That is pretty much what has happened with derivatives. In 2000 there was a trillion dollars worth, now there’s a thousand times more. They have doubled ten times. If we let them double 10 more times I don’t even know what the number after a quadrillion is.
For certain, we cannot solve the problem by throwing money at it. When they brought up AIG, I explained this to the guys downtown at Elmer’s Barber Shop this morning. They’re too big to fail because of the trillions worth of credit default swaps that would become worthless. They caught on pretty quick. It’s all IOU’s. A quadrillion dollars worth of IOUs. Any money that gets thrown in gets sucked up by somebody who wants their IOU paid off. Elmer said it perfectly, "It’s a giant black hole."
There is a quadrillion dollars worth of toxic sludge and counterparty obligations for sludge that will suck up any amount of capital thrown up by the worlds banks or governments. The only country with any chance of stopping the catastrophe is Zimbabwe. With inflation at 11,000,000% that’s the place to dump this sludge. Or if the Republicans have their way, in a year we can hear President McCain say "Were all Zimbabweans now."
OK, Zimbabwe was a bit of a snark (I hope). But I’ve got a better idea. Don’t bail out the toxic sludge but cut this off at the root. The federal government or some very rich benefactor who would like an opportunity to save the world should buy up all the mortgages that are going into default. There’s only $10 trillion worth of mortgages in the entire US and 90% are owed by people who did not overextend themselves and can continue to pay as long as they keep their jobs. Supposedly we already got half of them by taking over Fannie and Freddy but I bet all we got are obligations to the people that bought the derivatives. The upcoming $700 billion bailout would probably cover it. And there would be no further liability. I think the best thing to do with the houses is to let the people living in them to stay in them and if they keep up with their taxes for the next 30 years they can own it. If they want to sell and move they should have to give back the foreclosure price plus 50% of any profit over that. It would keep the tax base going for communities, give people an incentive to improve their properties, help restore the real economy and cut the derivative market off at the roots.
And then let's get congress to regulate. No usury, please. Don't let financial institutions gamble with public money. Hold people accountable for malfeasance. Fulfill your duty to protect the constitution and serve the citizens of your country instead of the companies that support your campaigns.