My Proposed Economic Policies

The U.S. Economy, and World Economy right behind it, is entering, or has possibly already entered, a prolonged, and possibly deep, recession.

1) Equity Ownership: Instead of Fannie, Freddie, and banks holding the mortgage foreclosing on homes, they should first try to negotiate a lower mortgage that's cashflowable by the borrower in exchange for an equity portion in the house. In the short run, the banks will have to write-off the portion of the mortgage equivalent to the equity portion and accept a lower income stream, but such a policy would lower the number of houses on the market and help buoy the real estate market. In the long run, real estate values will increase, without a doubt, and at which time the borrower would required to purchase back the bank's ownership portion. The bank should recover a healthy profit.

2) Additional Capital Infusion: Based on the graph below, Treasury will need take a greater equity stake in banks. Essentially, banks will be nationalized, but this time they need to take voting interest along with their preferred share ownership. That was a huge mistake in the previous equity infusion. Such a vote provides provides the government leverage over management, management's salary and to get the banks to start lending instead of hoarding cash.

3) Jobs Program: The government needs to start hiring laid off workers to teach, rebuild the infrastructure, law enforcement, etc. This needs to be done sooner than later.

How long and how deep the recession will be depends on two things: (1) how quickly financial institutions will start lending again, and (2) how quickly the consumer will start spending again.

If the financial institutions continue to limit lending, economic growth will be stymied, job lost, and consumers will stop spending, which will cause more job lost....you take it from there.

And as I've said before, I believe the core blame for this crisis falls on the shoulders of the government (Bush Administration, Federal Reserve, Congress, S.E.C., etc.) and their lack of regulation and oversight of the mortgage origination, credit derivative, and hedge funds during the last eight years.