FAP877: Wishful Presidential Address on the Economy

After a rough ride on the markets, I thought a friendly voice might help a little, and in good fun, this is what I wish our politicians would say but probably won’t.

Click the play button to listen now:

–

Good evening, my fellow Americans and everyone else tuning in, too. Today was a historic day for several reasons. First, your Congress, for the moment, listened to you when you said no to corporate welfare, no to the big bank bailout of 2008. There was an equally historic fall of the markets on Wall Street, which I’m sure the papers will label as something hysterical like financial armageddon.

It is not. This is not financial armageddon. This is not the end of the line for America. Not a single stalk of wheat wilted at the collapse of a major bank. Not a single ear of corn decided to throw in the towel after checking its investments. The sun came up today and it will come up tomorrow no matter what happens on the markets, because the markets are only a small part of America.

There will be impacts to all of this. Some loans will be harder to get in the coming days and weeks ahead. Some more banks will fail, almost certainly. Some more investment firms and other financial services will take a hit, almost certainly.

My friends, what we’re dealing with is essentially poison in the veins of our financial system, poison from irresponsible borrowing and irresponsible lending. Lenders who gave too freely and borrowers who bit off more than they could ever have chewed.

Like any poison, the only way to truly cure what ails us is to let time and nature flush the poison out of us. We can and should do what is practical to lessen the pain, but not at the cost of prolonging the poison, or worse, injecting more poison into ourselves by further borrowing from tomorrow to pay for the mistakes of yesterday.

Banks, businesses, and yes, homeowners, do need to be allowed to fail. This is harsh but true, and again the only way to get the American economy back on track. Flush out the garbage loans, flush out the debts that will never be repaid no matter how many bailouts you try, and reboot, in essence, our financial system.

Once the markets have been allowed to reach bottom naturally and quickly, we can start to think about our prospects for the future. Over the past 25 years, we’ve heard a lot about supply side economics, or trickle down economics, where you allow the wealthiest to prosper and hope that the money trickles down to everyone else. It’s time for trickle up, or grassroots economics, where we do as much as possible to encourage individuals to make smart financial choices and then get out of their way.

The first step in trickle up economics is to immediately make tax free for at least two years any income earned from saving money in FDIC insured accounts. This means checking accounts, savings accounts, FDIC insured money market accounts, and Treasury bills and bonds. We need to encourage and provide economic incentives for more Americans to save money rather than spend it, to reward putting something aside for the rainy days rather than hoping the sun will shine every day. This will also have the net effect of helping to recapitalize banks who need the cash.

The second step in trickle up economics is to mandate financial literacy education at all levels in our educational system. So many Americans made poor choices not out of malice, but of ignorance, of not knowing what they were getting into. If we as a nation are in a spending mood, spending money to include comprehensive financial literacy at all levels of education from kindergarten to college is a wise investment. Millions of Americans can’t balance a checking account and have no idea how to read a mortgage contract, and that fundamental skill gap is a major contributor to our current problems.

From there we need to create jobs. Tax incentives to companies that opt to bring jobs to America are a start, but more important, if we’re going to spend money, let’s invest it in America by building infrastructure and citizenship. If we look to the past, the Tennessee Valley Authority, the Eisenhower Interstate System, the Civilian Conservation Corps, the Montgomery GI Bill that sent 8 million returning veterans to college, all were major forces for creating prosperity out of decay. Investing in our roads, rail, transit systems, investing in our energy infrastructure, investing in our schools will all create jobs but also create a solid foundation for the next generation to build on.

Finally and most fundamentally, the root cause of this entire mess was irresponsible lending and borrowing, but the chief symptom of the problem is too many houses for not enough buyers. We either need more buyers or fewer houses. Some houses currently in foreclosure or bank owned can be bought directly by the government or even private agencies like Habitat for Humanity for rehabilitation.

For the rest, we need to get buyers willing to buy the houses with borrowed money. If the government is in the mood to spend money, then create a program similar to the Federal Direct Student Loan Program, which allows borrowers to borrow directly from the government. The Federal Reserve Bank allows banks to borrow at the funds rate, currently 2%, which presumably is enough to fund the administration of the Federal Reserve. Add in an administrative margin of 2% and create a loan program that allows creditworthy consumers and businesses to borrow directly from the government in the same structure as the student loan program.

The emphasis would be on creditworthiness, and would have a similar screening and verification process that the government uses for allocating financial aid dollars, and while the student loan program is far from perfect, it is better than the alternative of 80% fewer college graduates. If we want to stave off foreclosures, letting borrowers get their properties re-assessed for market rates and get existing mortgages refinanced at government rates may be a good short term fix.

None of these solutions are bulletproof or guaranteed cures, but they’re all better than just handing money to banks and hoping they do the right thing. No matter what happens, keep in mind that the basic goodness of America - the willingness for people to work hard for a better life - remains intact, and as long as we provide a functioning system for them to do it in, we’ll succeed as a nation.

Good night, and may the belief system of your choice bless America.

Disclaimer: political opinions are mine and not representative of the Student Loan Network.

Subscribe to RSS headline updates from:
Powered by FeedBurner

Reminders
+
+ Financial Aid Podcast Show Notes at FinancialAidPodcast.com.
+ Free scholarship search secrets eBook at StudentScholarshipSearch.com/ebook
+ Free college scholarships contests!
+ Open an FDIC-insured savings account today!
+ Stafford federal student loans at StaffordLoan.com
+ Parent PLUS loans at ParentPLUSLoan.com
+ Graduate student loans at GradLoans.com
+ Private student loans available at any time - visit AlternativeStudentLoan.com
+ Private student loan consolidation at StudentLoanConsolidator.com
+ FAFSA form tutorials and free help at FAFSAonline.com
+ The Financial Aid Podcast is a publication of the Student Loan Network.

I want to hear from you! Send me your comments, questions, and feedback using this handy contact form!