Economic stimulus proposal to address liquidity crisis

Real Estate Weekly,  March 26, 2008  by Harry Langer

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The economy is at risk and corporations and individual borrowers are in a liquidity crisis because banks are reluctant to lend as a result of their own irresponsible residential and commercial real estate lending practices and excessive credit card exposure and a criminal failure of oversight by the Federal Reserve and Congress.

The corresponding depressing effect of these practices on the stock market, the value of the dollar, and the economy puts American banks and companies at risk of takeover by foreign and sovereign entities.

The Federal Government should not bailout and reward these banks and financial institutions at public expense for their losses and irresponsible practices. Instead, the banks should be mandated to arrange workouts with borrowers, reduce interest rates, and eliminate penalties. Also, usury regulations should be reinstituted and the former bankruptcy regulations restored for individuals.

As an alternative to bank and financial institution bailouts, it is suggested that the Federal Government lend (short term) directly to qualified credit worthy corporate borrowers engaged in domestic production of manufactured goods (not assembly of imported parts or subassemblies) that employ a minimum of 500 workers in specific industrial sectors. Government should also accelerate depreciation to encourage investment and lower corporate tax rates to create jobs. Additionally, tax credits should be granted for scientific and high-tech research and development to maintain U.S. leadership and foster economic growth.

To provide short term liquidity, the government would buy short term special issue corporate bonds of financially secure companies that would have first lien on corporate assets in the event of default. These bonds would bear an interest rate comparable to that of federal funds.

This program, which would have a sunset provision, could be administered by the independent, non-political Federal Reserve System through its separate regional entities who are familiar with the economies and needs of their individual regions and can assess and administer financial risk. The IRS could assist in collection of interest and principal. Also, banks could play a role but only on a modest administration fee basis.

This approach would minimize the risk of inflation and do the most to retain and create jobs+ Without a bail out, the banks still would have enough capital and reserves to accommodate the borrowing needs of small and mid cap companies.

BY HARRY LANGER,

H. LANGER REAL ESTATE

COPYRIGHT 2008 Hagedorn Publication
COPYRIGHT 2008 Gale, Cengage Learning