Capital Growth

Some people prfercapitalization by'capital accumulation'.. er that
is...growth.
Just put itin the bank and let it grow, then lend it or from it. In the
long and short of it, the same people will still leverage assets

Were the USA to adopt that policy, we might be 25or 50 years recovering
what we will do in 15 months if the stabilization bill's funds are
applied.

In themostconservativeofAsian societies, post-war Taiwan & SouthKorea,
had compelled savings-- like the USA did in war-time (really strong
inducements for Americans with taxes & bond drives).
However,reconstruction pans in those countries as in their counterpart
socialist world restricted private option to coordination with state
planning.

Despite the American business safety net, we are a materially
unregimented uncentralized economy. That provides innovation &
resilience, and is the reason for sober optimism about the bad debt
asset relief. America will respond - the financial markets debt will
not break the economy with that extended relief.

Debt asset was referenced -- not an oxymoron -- but an asset with
earnings - until the debtor repayment fails Those failures in mixed
bundles - waried buyers & holders of US mortgage bonds. Insuring them
and paying the creditors insurance claims , or adjusting the assets used
for leverage by discounted or failed bonds curtails, shrinks credit.
Replacing it sustains business and personal undertakings; so that
commerce and consumption can proceed forward.

Recession is no happy lesson, and no sane parties punish by it. Even
the criminal and the communist world have no autarkic oasis in severe
economic downtown.

Capital is made by surplus over costs--profit; and by the instaneity of
a promise in credit - solong as sound andcapable of returning the lent
amount with its true costs for use (interest).

Governmentmakes capital -- via taxdeposits in reserved non-spending
accounts, through profitable royalties on anythng itowns (usually
natural resources in our nation); and by bonds-notes, bills, and bonds.
A US government indebtedness is close to gold - when honestlybacked
andissued. (The Freddie Mac & Fannie Mae corporatios watered thecredit
of the USA with bundled variable rate sub-prime mortgages ---as if they
were ordinary debts of corporations.

Disclosures of those securities risks lessened their value -- they and
kindred private sector secondary mortgages were heavliy discounted ...
many failed with interests rate hikes & employment losses. Demands for
sounder assets, and claims against bond and other securities insurers
flooded the markets with dollar asset dumps - stock liquidations -
Which then combined with many hedge funds & money-market funds hedged
against loss computer programs; which then drove them selves down in a
selling spiral. Other ordinary traders and people panicked and so
more, and then ran for their banks. Great investment banks folded --
like sailers capsizing in a blow.
Few could stay liquid without borrowing; and every borrowing cost
more--because of the amount borrowed, the risk, the desperate
competition for available credit, and reduced asset bases

Pass the Economic Stabilization Bill quickly -- and reverse the backward
resonance of a bad dump.

More tomorrow -- on import substitution - like the Pickens Plan for
energy. Without foregoing cross-trade -- that which we produce here
- makes incomes and capital here also.

That 'capital' - even whenitisn't for tomorrow's consumers rent & food
&clothing - in a safe insured bank account -- just isn't going to grow
enough or quckly enough. We're spending the $700 billion on ourselves
by the wa; butitdoes relieve an international dollar credit crunch and
helps sustain the double blue chip of the safer American economy and
theplaces whereyou buy shares in it.

Bank Deposits & Money-Market Funds Insurance & the Bill

Minimum FDIC banking insurance amounts, used to be greater in 'constant
dollars' sevral yearsago. The Senate amendment raises the level to just
over the current 'constant value' of 2008 dollars (when expressed in
1992 dollars - the amount of $150,000 equals approximately $220,000
today). Ithelast fewyears,the amounthas beenheld to $150,000, even
aftter combining the old FSLIC insured deposits; and the number of
deposits insured per person has been frequently addressed, and is now
one per bank.

The Administration has also proposed insuring private individuals hedge
or money fund accounts. Again, the objective is to avert 'runs'&
'sales" -- to keep the money in the bank or thesecurities markets; and
to avoid private depositors 'means to live' vanishing in a 'flash'
evaporation.

That occurs in many societies where the bank lends the deposits to the
securities markets in a style like investment banking & underwriting.
Maintaining that base asset value is critical - and a basic safeguard
of the post-depression New Deal : US insured deposits--which may not be
invested in the stockmarket.
In a consumer society---the latter - if lost - would be doom and sure
road to severe recession.

Hence - assuring bank depositors of asset safety would join two-fold
with money-market funds guarantees & insurance. The Glass-Steagall
division of insured/un-insured banking no longer has most of the
depositors sleeping with the lambs and holding their
daily-weekly-monthly-yearly cash.

Depositors and banks fund the insurance with subsidized premiums.

Again, with confidence.. please pass the Bill.

Sugar Cubes?

Use a box of sugar cubes as a teaching device for explaining the removal of good or bad performing assets from a portfolio -- ie as if you were building a bridge or arch or struture with them.

That's why Americans check before they promise 'debt forgiveness' or adjustment. Also in America, debt forgiveness is an income, and any loss reduces taxable income.

As to your risk, Arthur Burns, a Federal Reserve Board Chairman past (now deceased and remembered for his midele-parted white hair,tortoise shell or gold-wire eyewear & Meerschaum pipe smoking at Congressional hearings) recommended: "DIVERSIFY & INVEST FOR THE LONG TERM!"

BAILOUT ?? !! .. NO!! An Intervention

Bailout is the errant term for an insightful economic intervention proposed by the Treasury Dept for the Bush Administration.

Sloughing off badly performing assets which tarnish the excellent selling of US backed securities; and re-establishing a core value of American assets (good debt or othewrise) to stabilzie markets and international asset holds.

By appropriating the $700 Billion, (via an increase in the public borrowing power) Americans get:
Debt .. an addition to the public debt (see previous post for that cost over time and as stated in constant government budget/GDP apportionment).
Stability in banking & consumer assets ... as more Americans depart the Glass-Steagall insured deposits separation for an entrepreneural venture or portfolio risk .. more are at risk.
Market righting .. an overreach is balanced by trim --r emoval of ballast and the trimming of luffing sails -- a good trimming is needed here.
Profit? -- a heathier US economy & banking system; and renewed international investment in American bonds -- an international envy (there are not enough EURO bonds and what do you do with dollars in the safest sense?). The mortgage bundling/bungling of FreddyMac/FannyMae risked that well earned sales value & reputation of the American Mortgage bond market.
Dumping $$$ ? -- that is allayed ..especially in dollar washes and balances - IF the stabilization program occurs -- if not, then excessive dollars are dumped; and bundled securities (such as the Freddy Mac Fannie Mae series of mortgage doubtfuls are dumped, as disclosure and lessened performance will ripen them until adjusted for true value). That includes the US stock markets & realty markets.

The US Treasury would buy back most of the likely to over-ripen bonds before that happens and reissue good debt, good credit & cash especially by firmer US backed Treasury bonds (without ambiguous mortgages). The US will replace Fanny Mae & Freddy Mac stock with solid bonds as appropriate; like a corporate treasurer would in deflating and dewatering.
Reform? Most likely there will be reform, starting with a more permanent equity owner oversight of Freddy-Mac & Fanny-Mae; short-term and emergency exclusion of short-selling in some fashion by greater disclosure regulations; surer future performance (no chance of British style "repos" here & a revisit of the short-term capital gains tax (if only to fund regulation & market fees).

Populism & the little guy / fat cat syndrome? -- This isn't just saving Wall Street & the Hamptons folks ... Bailey Savings & Loan etc is involved; so are your ordinary 401-K retirement plans; and other pension benefits & guarantees which are now insureed the Pension Benefit Guanranty Agency of the US Government; the Federal Deposit Insurance Corporation which brought in the old Saving & Loans Industry's FSLIC. In short, if the Federal governemnt doesn't intervene in advance, it will be commanded to pay plenty for recession & wash-out induced social services forward.

What does cancelling debt do? It draws down assets -- a debt when performing is an asset --not a trick of double book-keeping. Banks cannot afford it; they pay when you and I are late re-paying or paying or absorn a cost -- sometimes borrowing and cost-absorbing to ruin. When relieved of bad debt, they are healthier, and with the envisioned program recount and revive with healthier debt and credit provided by the US government; which is acting as an inbestor.

This is not laissez-faire, it is modern economics ..Keynesian, Samuelson & Friedman ..all the pragmatic modern economics Americans have learned and led with internationally.

Yesterday's political salvo in Congress' House of Representatives, which is now seen as genuinely a partisan rebuttal to partisan faulting, should only have delayed the rescue with a gain in profits a floor and bargain buyers benefit today.

In the 1929 crash, the new Federal Reserve System was willing to lend money, insert liquidity , but was outvoted by its internal board, with parochial rural interest & west coast banks unwilling to risk their capital on Wall Street. History proved the folly of that populisim and parochial approach. Modern banking and Federal Reserve action in crashes of the last twenty-five years particularly have proved the soundness of Central Banking intervention.

In this rescue plan, the Treasury will shore up the Federal Reserve member banks with bad debt relief, conserving the Fed's self-financing portfolio. Over the Congressional adjournment, contact your member of Congress and communicate your vote preference for non-partisan objectivity, and pass this speedily needed plan.