Problem: Credit crises because of the
unregulated and “ill-liquid” market, if you will.
The Housing Bubble is ridiculous in
it's absurd untethered reality. I use the housing market as an
example, because it is perhaps the most indicative mark
of stability or safety.
1984 Real Home
Price Index 105.85 – 2007 RHPI 195.85 – 2006 RHPI 202.82 (high).
1984 Real Meadian
Family Income $45,000 – 2005 RMFI $55,000
The comparable years' indices don't
match exactly, but, an 85% increase in RHPI was mirrored by only a
22% increase in RMFI. All allowed by “unregulated” markets. I
would call them regulated markets in favor of capitalist leaders, against the long term health of the economy.
In this economy, I see all of
us. Our health and stability are directly
connected to the health of the economy - nothing radical here. It should be obvious that it
is in our best interest to embrace progressive regulations and accuse the
proponents of “free market forces” as being naïve to human
nature or indifferent to the needs of the body politic. In the
extreme, unfettered free markets in practice lead to feudalism and
serfdom. Although we're not quite there yet, the recent bubbles
(housing, stock market, wage inequality, negative wealth acquisition)
have all been bred and developed by orgiastic, Caligula-like growth
and speculation. Greed. Irrationality is central to human nature;
laws and regulations protect us from our irrational selves.
My Proposal
Initiate an economic stimulus package
offered to the credit markets.
These funds may go to projects with
proven benefit to overall economy.
Funds may be earmarked for specific
industries (i.e. clean
energy, manufacturing, infrastructure, state-side consumer
products)
These funds may not enter the housing
finance market.
Credit institutions looking to access
these funds must show the following:
Financial stability, and the ability to
assume risk already held. Would also have to subscribe to business
procedures and limits relying less on risky speculations.
No holdings in offshore or unregulated
American accounts.
Equality in wage distribution.
Highest salary (including bonuses) shall not exceed 25:1 against Real Medium Household
Income.
Stock offerings shall not be available as employee salary packages or bonuses and may only be purchased through
independent bodies.
Payback of funds shall be paid up to
25% of the institution's profit.
Program will be instituted by a
bi-partisan commission, Treasury management office as well as
institutional economists, academic economists, worker's rights
representatives, and state gubernatorial representatives.
I have no idea how much is enough.
I think the housing market and
financial influences might have to fail to finally come into check.
It might be a wacko socialist idea, but I do not think homes should
be so defined by market forces. Homes should not be considered a
financial asset, an investment. Homes should be considered as
someplace to live and a human right of existence. I think funds
should be given to projects for affordable housing in support of our
housing trades and priced-out home buyers.
If the financial institutions can't
assume or move their risky holdings, then they fail. If current
institutions can't prove their stability, there is no reason why
smaller or new institutions can't manage these funds. It is obvious
the risk levels have been ignored with regard to stability. The
rules need to be readjusted and would have to be followed to
participate.
No reason to allow institutions to
benefit from this stimulus and hide or remove money from our economy.
The 25:1 ratio also addresses the issue of money removed or isolated
from the general economy. I have no idea what the absolute effect
would be if over the last 30 years, while this ratio has exploded, the
total income that gap represents were dispersed throughout the
general population. I know it would be a big effect, a big effect on
the standard of living and overall economic stability.
In 2005 alone,
total executive pay covering a sampling of just 350 public held
companies was $2,164,952,000 – total pay of manufacturing jobs was
$55,551,589 (at the current 39:1) – the difference being
$2,109,440,410. That's a lot of money going to just 350 company
executives instead of shared in the general economy, especially
manufacturing. Although this isn't solid representational
comparisons, it shows the creep of wealth away from the general
population. I assume it would be a larger spread if compared over
the whole economy. And not that the income difference would have to
go directly into other income, it could also be used as industry
investment.
Offering stock (or other non-income?)
as salary will only lead to mismanagement and possible corruption.
It also consolidates future wealth in a few, limiting access to the open market
which is a stabilizing force over the value of those interests.
These non-income salary components could be considered if they become
and continue to be treated as taxable income instead of circumventing
Federal Income Tax.
I do not know if the 25% payback rate
is realistic, but it is necessary to treat the stimulus as an
investment with expected return if only to break-even. Arguably,
payback from profits in effect takes money away from investors'
accounts, but the benefit from the stimulus is aimed at the whole
economy and not just those able to invest.
What's stupid about this? What am I
missing? And if this is too simplistic in theory (obviously the
specifics are not here), why has our economy become so convoluted and bilge
laden? I was thinking this might be the three page starting place
that should have been offered as a solution.