Tuesday, October 07, 2008

Well, I opened my big mouth

I opened my big mouth and whined about the stupid "bailout' in my post "Congressional IQ". So Jim Gatos called by bluff and asked what should be done about it. Well, in order to have the right to whine, one must also have some suggestions to fix the thing he is whining about, so here is my reply to what Jim asked. You can read Jim's comment here: Jim's comment and here is my reply:

Hey Jim,

For more on what is causing this financial meltdown watch this video: Money as Debt

You asked, "first is what should be done, and secondly is what can the country do to make sure this mess doesn't happen again."

Interestingly there was a law that could have prevented this sort of thing from happening. It was called the Glass-Steagall Act and it prohibited investment banks from acting as commercial banks. Investment banks (which make speculative bets) could not own commercial banks (which accept savings deposits from customers) and so depositor's savings would not be put into risky investments.

The Glass-Steagall Act was made law shortly after the Great Depression and was meant to help stop another such depression. The Act was repealed in 1999 after the banking industry poured $200 million into lobbying efforts to get rid of it. See this article for much more data: The Con In Central Bankers' Confidence. A fascinating (though scary) article which explains a lot about how we got into this mess.

Your questions are tough to answer. Here is what I'd do if I were in a position of power: I would apply the "Danger Formula" - a part of Scientology Ethics. Here are the steps of the formula (in quotes) and what I would do. My suggestions are based on the little data that I have on this mess. I'm sure people who know more about it could come up with better ideas.

Also the actions I suggest to take are my suggestions only and have nothing to do with my Church. The Church of Scientology does not get involved in politics or government.

"1. Bypass (ignore the junior or juniors normally in charge of the activity and handle it personally)"
I would bypass the financial institutions which brought this about. The next step of the formula gives what I'd then do.

"2. Handle the situation and any danger in it."
There are a couple of ways this could be done.

a) To handle the "credit crunch": the government could set up its own agency to give loans to businesses and individuals. They already have the SBA in place so its role could be expanded.

The rules for qualifying for a loan could be set to the same rules as the average bank followed before the craziness hit.

Once this agency starts giving out loans, following reasonable qualification requirements, it is likely that banks would start to follow suit and lend out on similar terms. Otherwise they'll go broke because no one will be getting loans from them.

Also the government could mandate the rules banks must follow to decide who can get a loan. This will bypass the psychotic pendulum swing that went from "Yes I will give your pet duck a loan" to "You need a credit score of 25,000 to qualify for a $10 loan".

The end product of these handlings is that loans will start to flow again but following sane loan qualification guidelines.

b) To handle the problem of homeowners not being able to pay their mortgages: one handling would be to allow them to change their mortgages from 30 year to 40, 50 or 60 year mortgages. This would reduce their monthly payment and allow them to stay in their home and allow banks to keep the house on their books as an asset.

I'm sure the bright boys and girls in the banking industry can think of other solutions. So people who made dumb mortgage choices (with the help of unethical banks) can keep a roof over their heads.

c) To handle the problem of banks with worthless "assets" on their books. With steps a) and b) underway the housing market should be starting to recover. So the value of houses will be better. The banks should fix up foreclosed houses so they can be sold - perhaps at a loss but at least at a price in a recovering market. They could also offer longer-term mortgages so more people can afford to buy with less chance of being unable to pay three or four years down the road.

"3. Assign the area where it had to be handled a Danger condition."
Tell the financial sector that they are in trouble and better get their act together otherwise they'll be out of a job and in even bigger trouble.

"4. Assign each individual connected with the Danger condition a Personal Danger condition and enforce that they follow the formula completely, and if they do not do so, do a full Ethics investigation and take all actions indicated."
(The steps of the Personal Danger Formula are similar to the steps here. If you want to know more then buy the book Introduction to Scientology Ethics)

First, every individual in the sectors of the financial industry where this happened have to write up, in exact detail, the crimes and other unethical actions they did or were involved with. If they do an honest job of this then the penalties will be lessened. If they don't and their activities and crimes are found out later then the penalties will be increased. Then they do the steps of the Personal Danger Formula.

I'd also have further investigations carried out based on what came up in these write-ups. All crimes found would be made public and prosecuted.

I would also have a major investigation convened into the revoking of the Glass-Steagall Act. Every politician who voted for its revocation, every lobbyists who lobbied to have it revoked and those who funded them would be looked into. Everything found would be made public and all crimes prosecuted.

"5. Reorganize the activity so that the situation does not repeat."
I would disband the Federal Reserve and put the country back onto the Gold Standard, initially. On a longer term I would find another standard to use that reflects the productivity of the country rather than how much gold we have in reserve. For example, use the GNP as the basis for how much money we can allow in circulation. We produce a billion dollars worth of product then we can issue that many dollars.

I would make the issuance of money follow the Constitution.

I would abolish income tax and replace it with a national sales tax. This would encourage people to save and would only tax them when they spend.

I would figure out a way to phase out the fractional reserve system of banking and get to a much more rational system that doesn't cause inflation and the sort of crash we are experiencing.

"6. Recommend any firm policy that will hereafter detect and/or prevent the condition from recurring."

Reinstate the Glass-Steagall Act.

Add learning about money to school curricula: its history, how it is manipulated, how the fractional reserve system was used by bankers to amass huge personal fortunes and power, how the Federal Reserve system brought about the current mess, basics on how to stay solvent, how to balance your check book, etc., etc. That way future generations won't get fooled again.

There are probably lots of other things that can be done, but this is not my field, so I'll leave it up to people who know more about it.

So, Jim, that's my suggestion.


Ninjastevo said...

BRILLIANT post Grahame!

Obviously there's a to do within in some of these steps but I hope people can see the sanity, logic and justice of what you're proposing.

For too long have the international bankers played games with this world and this is just another example of it.

Your suggestions would quickly put the power back in the hands of the people and get things heading in the right direction.


Grahame said...

Thanks. It would be great if the people of the world actually exercised the power they really do have.

Clive's Scientology Journal said...

I think assigning them danger as in #4 is a little too generous. Seems like the people in charge took on the color of an enemy or betrayed the trust of their fellows.

I know that is not part of the steps but that's my two cents worth!

Jim Gatos said...

Grahame, I'm pleasantly STUNNED! Thank you for taking the time to answer this in the complexity you took. I have to say, I was in no way "challenging" you, and my question was more of a generalized statement. Still, I thank you for the time and the analysis... I would like to just add a comment or two to some of the statements here.

I totally agree with you on the "Glass Steagall Act". This country was doing fine until 1999, although a similar situation (although not as bad) happened in the early 90's. Is this a "Republican" thing? To screw up the economy? And if it is messed up, to screw it up even more? From a supposed surplus with Clinton now we are on the verge of economic bankruptcy? I can see why Donald Trump's a Democrat, LOL...

The "Danger Formula" .. I like that. Think I'll research that a little..

I'm all for responsible government intervention and having the government give out loans is fine, however, what to do with defaulted loans? Jail? More taxes?

Yes, I DO think loan qualification should be back to

I'm not so sure about lengthening loan times to help people lower their payments. One of the reasons I think people balk at their loans is because they use up their equity, or the market "burned" the equity out. They owe 30% or more than what their property can sell for. Sadly, even if they can afford to keep paying, some walk out, thinking they don't want to make the bank rich, even at the cost of their own credit. I don't have an answer myself, btw.

The way I see it, at least in my market, prices are around where we were in 2001 - 2002 or so. Affordability for multi units is good now and people find it more affordable to buy than rent. THAT'S HOW IT SHOULD BE. Maybe it's just best that some of these banks go away, anyway...

Abolishing the Federal Reserve, and no income taxes, with a national sales tax, I TOTALLY AGREE WITH!

Thanks for the suggestions. They sure are something to consider. I may link this post to my blog. with your permission.

Grahame said...

Hey Clive,

I know what you mean. But we are dealing here with thousands of people. They all had a degree of responsibility, but not all of them were complicit in the treasonous behavior of those at the top.

Assigning them Danger and having all of them write-up, in exact detail, the crimes and other unethical actions they did or were involved with, will expose a lot of the major crimes of those at the top.

And I did say, "I'd also have further investigations carried out based on what came up in these write-ups. All crimes found would be made public and prosecuted."

So the guilty will not get away with their crimes.

Grahame said...

Hey Jim,

Don't worry, I didn't take your questions as a challenge, but they did get me thinking and the post was the result.

I was actually pleased to get the questions because that gave me a chance to demonstrate the practicality of Scientology and how it can be applied to any situation, even one this big.

The Danger formula is one of several formulas for handling different conditions in life. This page, The Conditions: States of Operation, gives you a brief explanation of what the conditions are. There are formulas for good conditions as well as for the bad conditions you can run into in life. There are several books and courses which cover the conditions, the formulas and how to apply them in life:

-- Ethics and Conditions Booklet - Covers the conditions, the formulas and other basics of ethics (which is the subject of how to make decisions that will help you and others survive.)
-- Free online Scientology courses - including one on the Ethics and Conditions Booklet. The course guides you through the booklet and ensures that you fully understand and can apply the data in the booklet. You can also do an expanded version of this course in a Church if you prefer.
-- How To Improve Conditions In Life Course - This course covers similar data to the Online course, but you do it at a Church so you have someone there to help you when needed. This course also has more data you can use in your work as well as personal life.
-- The book Introduction to Scientology Ethics - Covers the conditions, the formulas and helluva lot more. There is also a course based on the book that you do at a Church. It's a much bigger course than the one for the booklet or the How to Improve Conditions in Life course.

I hope that helps you in finding out more.

Is this a "Republican thing"? I don't know. Clinton was the president in 1999 when the Glass-Steagall Act was revoked and plenty of Democrats voted for it. Also the "bailout" had a majority of Democrats vote for it. (I thought they were against "corporate welfare"??) I guess if Obama gets in and the economy improves then you might be able to say it is more of a "Republican thing". We'll see. I saw a quote recently that the two parties are just two wings of the same bird of prey. I thought that summed it up quite well.

On your questions about people who default or who just walk away and how they should be handled. I think the existing system where their credit gets badly dinged is probably enough, but I'm sure there are people in this field who could come up with better answers. I'm not an expert.

On linking to this post: feel free. You can link to anything on my blog anytime you like.

And keep commenting and asking me great questions!