How to Handle the Loan Crisis

Why do I expect the leadership in this Country and the World possess the wrong attitude to the entire Issue of financial regulation? What is needed is to shut off the Spigot controlling the flow of foreign cash into the United States. Americans, whether Individuals, Business, or Government, are borrowing too much Cash–domestic or foreign. It is good for Business, but destructive of effective Repayment schedules. International regulation of the financial markets are not going to make the current deluge of Borrowing any more sound. Transference into economic terms would suggest that the U.S. economy would have to expand in excess of 3% per year to actually meet Repayment schedules of the total outstanding Debt–both Public and Private. A lot of bad Paper has to be washed out, and Everyone should start to consider restriction of Debt expansion; regulation will not accomplish anything!

This article amplifies the Problem created by Central Banks trying to shore up what is basically bad Paper. They are still disgorging vast amounts of Cash, in Hope that the added liquidity will cancel the tendency of restrict Lending, when it is exactly the restriction which is necessary. No Lending agency can afford to extend risky loans, when faced with the level of already-held unsteady Paper, no matter how much Cash they are offered. One does not Double-down in Poker when One is only holding a Pair of Deuces; long-term viability suggests too great a Risk, especially if One is operating on borrowed Capital.

I agree with Martin Regalia at the U.S. Chamber of Commerce that We are not likely to slip into Recession; there remains sufficient Consumer Demand to meet Payrolls and Business financial commitments. I disagree with Martin in his supposition that the Fed should take further action to increase Liquidity. The Fed, if intelligent, should turn to the more practical policy evaluation of how to vent the large amount of bad Mortgage Paper. I personally would incite control procedures for forcing Foreclosure Proceedings, setting a Date where financial institutions must untangle the ream of financial instruments they created, and list the estimated Value of such Instruments according to Guidelines set by the Fed. lgl