My Own Attempt At A Ridiculous Bailout Plan

For the record this plan is slightly tongue in cheek, but at the end of the day if the Government can come up with a ridiculous plan why can’t I come up with a more viable plan that’s just ridiculous expensive? To set the proper context let’s assume that (for some reason) the Government is going to spend $500-$700 billion to bailout the economy and so the only question is “how” the Government will spend the money as opposed to IF.

Let’s assume that the government is going to spend $500 billion in this particular instance within the following areas:

Infrastructure: over the medium term (let along the long-term) it’s going to be harder to build a strong economy if our roads and bridges are falling apart, so one pillar of the plan would be to spend $100 billion on infrastructure projects. This investment would benefit the nation tremendously as it would create jobs, inject cash into the economy and strengthen our infrastructure for the future.

Savings Plan: part of the reason for the anger over the current bailout is because it feels like (and largely is) a transfer of wealth from the taxpayer to Wall St, however the anger taxpayers feel doesn’t change the fact that the banks are desperately in need of capital and the Government has to do something to shore up our banking system. My savings plan idea is a potential solution:

$2,000 ($200 billion total) per taxpayer would be directed towards the banks in the form of a CD in the name of each taxpayer, the idea is that the banks would receive a large cash infusion and the taxpayer would receive a base interest rate + a % of the profits the bank is able to generate with that money. After a time period of 12-36 months the principle is returned to the treasury (the and the taxpayer receives their share of the interest and profits, and the bank should have (in that interim time period) recapitalized itself so that it no longer needs the infusion from the government.

The plan doesn’t sound as sexy as allowing the banks to dump bad mortgage securities on the taxpayer, but I seriously doubt the financial systems are going to be as frozen up if $150-$200 billion is injected into them overnight and the cost is slightly higher than a high yield CD.

Consumer Debt: create a two-fold economic stimulus plan that pays out $1k per taxpayer in cash for them to use however they like, and that also allows them to assign an additional $1k to any bank they owe debt to (debt free taxpayers could add to the CD above). This would (again) infuse the banking system with $100s of billions yet deliver significant benefits to the taxpayer as well. While it doesn’t have the allure of being able to allegedly sell mortgage securities for a profit in the future, it would be able to deliver a significant amount of tax revenue in the form of increased banking profits and consumer spending.

Another potential addition to the plan could be $50-$100 billion worth of need based grants for college students (and/or for any worker seeking continuing education), which would not only enable more people to get educated, but reduce their debt burdens post college.

Like I said in the introduction I mean for this to be slightly tongue in cheek but seriously illustrative of some ideas that could be used to assign direct benefits from the bailout to the consumer and to the banks at the same time, because if we’re just to hand over $700 billion without focusing on the recapitalization issue and/or overpaying for mortgage securities we could just as easily redirect those funds to something significantly more beneficial.

After all my “tongue in cheek but with a degree of seriousness” plan would cost $100-$200 billion less, shore up the nation’s infrastructure and create millions of jobs, increase savings rates, reduce consumer debt and stimulate consumer spending in one fell swoop. Obviously it doesn’t have the potential of turning a profit and/or breaking even and would be a lot more expensive, but to say that the current plan is going to be profitable is somewhat spurious, not to mention the fact that the benefits are directed at a few and it misses a lot of core problems facing the banking industry.

I.e. as I said in the opening, why can’t I create a somewhat ridiculous plan of my own while simultaneously creating one with more benefits?

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