My proposal for the financial crisis

A few posts ago, I railed in anger at the bailout for failing financial services corporations proposed by the Bush administration. Just now, I was reading a New York Times article that discussed the constituent communications being received by elected leaders, and noted the outstanding percentage (95% or more) that expressed a similar sense of disgust at this proposal. The lawmakers quoted seem to want to respond appropriately; however, they also seem genuinely perplexed as to what can be offered as an alternative to an economic system that seems on the brink of devastation, with very serious negative consequences for these same constituents. So, to help them out - in all seriousness and good faith - here is my plan.

1) LET THESE COMPANIES FAIL. They have irresponsible leadership, near-criminal business practices, and show no indication of the kind of fundamental reformation in the way they understand and carry out their business that would make them remotely trustworthy. Their demise is an appropriate natural consequence of their practices and philosophy; let it happen.

2) DETERMINE THE CONSEQUENCES OF THIS FAILURE. We are being told that if action is not taken, the whole economic system could collapse; but I've yet to hear anyone clearly outline the direct and indirect effects of AIG or Lehman or Bear Stearns going out of business. You can't base any solution on a vague "something bad will happen"; the anticipated potential consequences of the failure and the people who will be affected must be clearly and carefully identified to provide the factual basis for decision making. This is not a political, how do I spin this to protect what I want venture; this needs to be a scientific, unbiased inquiry conducted by trustworthy economists, sociologists, and whoever else is needed to understand what we think will happen.

3) IDENTIFY THE MOST VULNERABLE AFFECTED PARTIES, AND PROVIDE ASSISTANCE TO THEM FIRST. The people who most need the assistance are those who will have the least capacity to handle and respond to the negative effects on their own while still meeting their basic needs. For instance: elderly pensioners dependent on income from these companies; families who will face homelessness as a result of foreclosure; service workers whose jobs are the difference between poverty and subsistence for their families. Resources go to the neediest first, and then to others on a sliding scale of severity of impact in terms of ability to survive and care for one's self or others for whom one is responsible.

4) FOR THE LESS VULNERABLE, PROVIDE ASSISTANCE THAT HELPS THEM WEATHER THE TRANSITION TO ECONOMIC STABILITY AND SUSTAINABILITY OVER THE LONGER TERM. This could include job placement and retraining assistance, and assistance with entrepreneurial and job creation opportunities geared towards goods and services we want to promote as a society. For instance, helping people find work or start businesses in the so-called green economy (e.g., developing sustainable and secure food production systems, environmentally and socially healthy products, or sustainable corporate and public policy) would be a much better way to invest public money than in unsound financial service businesses.

5) DETERMINE WHAT HAPPENED TO GET US HERE. The practices, philosophies, documents and transactions of every financial services institution that is party to this crisis must be examined to understand how we got here. What were the actions that directly contributed to the problem? What are the factors in the environment that allowed the problem to perpetuate unchecked?

6) AT BEST, DEVISE APPROPRIATE WAYS TO EXACT CONSEQUENCES FROM ALL THOSE WHO WERE DECISION-MAKERS IN BRINGING THE CRISIS ABOUT OR ALLOWING IT TO PROCEED UNCHECKED; AT LEAST, DO NOT ALLOW THEM TO REAP ANY REWARD FROM THE ASSISTANCE. Determine what happened to cause this situation, and assign responsibility so that those persons can be held accountable. No one who played a conscious decision-making hand in this, no matter how powerful and well-positioned, can be exempt from this examination and from being held accountable. Ideally, those persons should have any profits that they made from this situation removed from them and turned over to the public entity administering this plan (with appropriate oversight) to support the assistance described above.

7) CREATE THE NEW ENVIRONMENT THAT WILL PREVENT THIS FROM HAPPENING AGAIN AND PROMOTE THE BUILDING OF A REVITALIZED, FAIR ECONOMY. Determine the principles and guidelines of a fair economy that offers security and prosperity (not excess profit) to all. Establish the regulations and laws that outline this new economy, incentivize the behaviors that keep it healthy and functioning, and punish behaviors that damage the system's health or seek to undermine its principles.

8) RETROACTIVE ASSISTANCE. The foreclosure crisis has been taking place for at least two years, and millions of families have already been affected. Those families need to be identified, and assistance offered to help them recover on the same principles being used to provide assistance to those who will be directly affected by financial service business failures.

That's my plan. I don't have every detail worked out, but I believe that this outline is specific enough to offer a basis upon which lawmakers and officials can create a just and appropriate bipartisan agreement. I welcome suggestions to improve this plan, as well as your assistance in bringing these recommendations to our elected representatives. Thanks!

Author's note: this afternoon, I discovered this website and blog post: http://globaleconomicanalysis.blogspot.com/2008/09/bailout-in-installments-is-still.html. I've been having a great time reading through it, and the articles to which it links.