Democracy 2 pOintzero

Cash seems to be the ultimate contagion in Washington D.C. these days. A contagion which seemingly attacks logic and fiscal reason, leaving its victims with a lone impulse of rewarding failure while neglecting root cause.

No, I am not an economist. No, degrees in finance or accounting are not in my coffer. Yes, it is entirely possible that these matters may just lie beyond pragmatism and common sense for ordinary people to grasp. But with these disclosures out of the way, here is why I think the whole federal bailout concept is bizarre and absurd if not worse.

Forget the Symptoms, Treat Root Cause
Forgive me if I am wrong, but isn't this how we got here?

1. Easy mortgage and credit access to folks who lacked genuine means of repayment
2. Big banks, investment firms and insurers buy up pools of mortgages at a discount and expecting repayment
   
3. Shaky borrowers start defaulting on mortgages, properties go into foreclosure
   
4. Foreclosures drain the treasure chests of big banks and investment firms who bought the loans
   
5. Big banks, investment firms and insurers take huge losses, tighten lending
6. Consumers and businesses find it tougher to get loans, spending declines and employers cut costs and layoff employees
   
7. Spending declines lead to economic slowdown, employers layoff more
   
8. Layoffs lead back to Step #3 (which then leads back again to #4, #5, #6, #7 and #8)

It's All Backwards
So let me get this straight, for years now we've heard that it is the 'resilient consumer' who has kept our economy afloat...and yet, is anyone in Washington talking about stabilizing the consumer? Nope. So Steps #3 through #8 can (and will) continue.

Instead, we are rewarding failure. We are rewarding poor management. We are rewarding predatory business practices. And oh, by the way, we the tax payer will foot the bill on top of the already staggering debt our country is saddled with.

This bailout plan has got it all wrong, it's not top-down declines which got us here, and it won't be top-down bailouts which will dig us out either.

So What to Do?
NBC has a show you may have heard of, Heroes, and it used to have a tagline: "Save the cheerleader, save the world." Well a different spin to that might include replacing the word 'cheerleader' with 'consumer'.

And yet, not all consumers are created equally. Some simply can't handle money, some simply saw a red-hot housing market and were looking to flip properties in the pursuit of profit while gambling with family savings. In other words, some consumers have been sterling assets for the economy, whereas others have been detriments.

Here is what D.2.0 recommends:

• Let irresponsible companies fail, responsibly -- let nature take its course with The Big 3 car companies suppliers and dealers, then provide a mixed package of job re-training and extended unemployment benefits to folks (earning less than $250,000/yr.) who are let go as a result. Why the special treatment for just this industry? Because of the deep and wide impact to the consumer economy which would otherwise result (see Steps #3-8 above).
• Extend unemployment benefits -- this stabilizes the responsible consumer, the one who has simply been an innocent bystander.
• The rest -- and what about those who simply were not credit-worthy to sustain a mortgage but long for the dream of home ownership? Pool at-risk mortgages, apply common sense criteria for income and FICO scores (etc.), and for those borrowers who would no longer qualify renegotiated the mortgages' terms so that the monthly payments become rationale over longer terms.

What Say You?
How do you feel about the federal bailout plan as it's been announced thus far? D.2.O would love to hear from you. And by the way, just in case you're interested in how much the government's vision for economic recovery costs, check out this link for historical perspective.