Posted by Markji:

Many good ideas stated above. A few comments....some new:

1. We need to keep as many people as possible from defaulting on their mortgages. The absolute last thing we want is to have the banks or the gov't take back hundreds of thousands of homes and then have tight controls for new mortgages. No one will be able to buy the homes and they will just sit there. Everyone will lose money.

So the bailout needs to address the people defaulting. Keep their interest rate low - at the rate, even if sub-prime, they were paying so they can continue to pay. Some money coming in to pay off the mortgage is better than no money. This can be regulated with conditions, etc but keep the people owning the homes.

2. The underlying cause of this economic diseaster lies with the SEC in 2004, and therefore with the President, Congress and the SEC Chairman. What they did was grant a huge leverage ability to the 5 investment banks; namely Bear Stearn; Lehman; Merrill Lynch; Morgan Stanley; Goldman Sachs. Everyone now has heard of these banks because these were the 5 main banks that were in trouble.

What the SEC did was this....All banks before this 2004 ruling could lend out (leverage) 12 times their monetary assets. 12 to 1. If a bank has $1 million in assets then they can borrow 11 times that and lend out a total of $12 million. This is how banks make money. This was working.

In 2004, the SEC allowed 5 Investment Banks (Bear Stearns, etc) and only these 5 Banks, the opportunity to lend out 30 times assets (30 to 1) and even up to 40 times assests (40 to 1). This is extremely risky. If anyone has bought stocks on margin, you know how quickly you can either make a lot of money; or lose a lot of money. Since the Investment Banks had permission to do this, they lent out money (issued mortages) at this very highly leveraged rate. Merrill Lynch was leveraged 44 to 1. But to lend all of this new-found money the had to accept loans from less deserving clients. They made a lot more money when times were good. But when times changed, their loses were catastrophic. Way to much leverage which accelerated their loses.

The underlying problem has been partly solved.....we don't have any more Investment Banks - Bear and Lehman went under; Merrill was bought out; and Morgan Stanley and Goldman Sachs changed their status from Investment Banks to Holding companies of commercial banks. So no one can leverage that highly anymore.

However, we, taxpayers are stuck with the mess. We should skewer our leaders in Gov't for instituting this change in regulations. From President Bush on down. It is more their fault than the CEOs who definitely were greedy, but they were just acting within the regulations.

3. I like the idea of taking back an ownership interest in the companies that ae helped.I find it hypocritical and interesting that Republicans don't like the "giveaway programs to help the needy" in our country, but they are quick to propose a $700 Billion giveaway program/bailout of the banks, that has no accountability and needs to be approved immediately. Geez!

[Edited by - markji on 09-26-2008 11:16 PM]