Tuesday, November 25, 2008

The new plan: a way to understand it

Suppose there were an outbreak of flu in the city? How would the Fed/Treasury attack it using their modus operandi under TARP as an example?

First they would stockpile mountains of vaccine and tell us not to worry. The problem is under control. Then they would call in the all the bankers and inoculate them. The Fed/Treasury would then announce that major steps had been made to stopping the spread of the flu. In inoculating bankers they have taken one channel for the transmission of flu out of the public domain. You could expect the spread of influenza to slow its pace.

You see the Fed/Treasury would nothing for you directly. But in building up the bankers 'immunity system the Fed/Treasury would be helping you.

When this did not work the Fed/treasury would announce a program of government paid Vitamin supplements to be distributed to bankers to further bolster their health and block the spread of flue though their ranks. . Meanwhile more nonbankers with major flu problems and hydration issues would be admitted to hospitals. To help with that the Fed/Treasury would announce a plan to subsidize ambulance companies in the city hoping they would pass on the savings to flu victims they might have to pick up and take to the hospital.

So do you still think that the Fed/Treasury plans are so supportive?

So let's stop being negative. what could they do?
The Fed could limit its asset purchases to those backed by pools of newly generated consumer loans. It could buy Fannie/Freddie mortgage backed issues if the loans were recently generated instead of old (existing). This would help to get the flow of lending started for sure. Don't just buy old stuff and hope banks will lend. By new stuff on the margin. Make sure that new lending is the result. Restart the market repair economic conditions then banks will lend without prodding.


1 comment:


Somebody needs a great plan to solve all the problems that are occuring.