Tuesday, February 24, 2009
(Cont'd from above)...

Jim (cont'd):   


Taking control of the banks and nationalization that won’t solve any of our problems… you have never heard a signal advocate of nationalization ever explain how the government seizing and running the banks would actually make them better… have you?…. nationalizing the banks in order to save them, to give you a little historical anecdote.. would be like taking our cue from General Burnside at the siege of Petersburg during the Civil War… or the War of the States depending on what side of the Mason Dixon Line you are from… Burnside had his men dig a tunnel under the Confederate position and pack it full of explosives, in order to blow a hole in the Confederate lines… but Burnside like the advocates of nationalization had no plan for what to do next… then when the explosives went off, he charges his troops right into the crater instead of going around it, and they got slaughtered… that is how I see nationalization… just like blowing up a big crater and charging straight into it… a half-baked plan that is poorly thought out… and if implemented will do much more harm than good, it will cause a Great Depression… the nationalizes want to blow a big hole… but they have no idea what to do after they blow everything up.

Do you really want a … do you really think a team run by Tim Geithner, the Treasury guy… a team that can’t even staff itself… will be able to run a bank like say Bank of America, with trillions of dollars of difficult loans and commitments… I don’t think… I don’t… I don’t think he can do it… and that is why nationalization is a recipe for disaster… and as for those professors screaming for it… alright, let’s call it as we see it… I wouldn’t trust one of those professors to run a checkbook… let alone a $4.5 trillion letter of credit structure investment vehicle… credit too fault swap operation… alright, let me give you one last point just in case the professorate is loves in your house… we know that capitalism works … this isn’t capitalism… nationalizing the banks isn’t capitalism… hey, I have another word for it… I call it Communism… we would be embracing… unbelievably, we would be embracing my great-great-uncle Vlad's plan… this is his plan the nationalization plan… it is not an American capitalist one… the last I looked we do not live in the Union of Soviet Socialist Republics… I could be wrong… maybe great-uncle Flan is right.

What should we do… tonight Obama needs to come out and tell us that he will restore order and function to the banking system before the market place makes it totally impossible for them to raise capital… he needs to say that we will help keep people in their homes… and ultimately stabilize the housing market which will take pressure off of trillions of dollars of soon to default mortgages off the banks… Obama needs to explain how we will responsibly increase credit… without having the banks run a fowl of the regulators, and how we will avoid bankrupting the Treasury and the future of the American people in the process… something that the Vlad nationalization plan would do… as it would lead the banks to their fate… finally we need to hear a commitment to prevent… are you ready for this, this is something that various key parties in certain towns have talked about… how about preventing social chaos… how about preventing social unrest, that is already happening in our Eastern European partners, because of the severe economic downturn… the kind of social upheaval that during the Great Depression led to… hey, let us call it as we see it again… fascism, world war… I want a little more FDR… I want a little less Dr. Doom… I have a two step plan that would accomplish all of these things, and I am begging you Mr. President, stop cribbing for Tim Geithner, and start cribbing for me… Geithner doesn’t seem to have any plan at all.

The first step involves taking control of the banking system… not the individual banks… remember, that is the Vlad plan… we don’t like the Flad plan… before it is too late, the clock is ticking here… because as the market knocks their stocks lower and lower, I think our banks are increasingly in danger of becoming insolvent and closing.. how to prevent it… first we have to avoid unnecessary and excessive taxpayer cost. we have to augment the playbook from the successful resolution of the Savings & Loan crisis of the ‘80’s… this time banks should issue preferred stocks to the FDIC, to meet regulatory standards… in return the FDIC should give the banks notes, backed by the full faith and credit of the US government… that will be an unassailable asset that they can put right on the banks balance sheets… how much does it cost…. nothing… the Treasury department issues nothing… no cost to you… then the FDIC Sheila Bear, who I am thrilled to be interviewing tomorrow night at 10 on the “Who Is Protecting Your Money” special… she will monitor the banks, she is good at that… if a banks loss proves insurmountable, or it is making no progress… she can resolve the institutions woes on their own orderly time table… it is the opposite of what is happening now… this is what I call my forbearance plan, you look the other way by exchanging these two pieces of paper and allow the banks to work out their own problems… with this plan, there will be some institutions left that the FDIC can’t… it can sell the deposits, there will be some winners… I arrived at this program not from thin air… but after extensive consultation with the former chairman of the Federal Home Loan Bank Board, the chief economist of the Federal Home Bank Board, and the director of economic policy of the Federal Home Bank Board… these happen to be the brains who fixed the Savings & Loan crisis… who to a man thinks nationalization would be a disaster… to you want to see what they sent… they sent it to me at the website TheStreet.com, in the op-ad section where I am chairman right now… and I believe in their plan… that is step one.

Step two gets us at the root cause of the banking systems problems… house price depreciation… and people subsequently defaulting on their mortgages… here Obama needs to assert that it is imperative that we keep people in their homes… without favoring deadbeats over hard working people… how do we do this… how do we avoid the mortgage hazard… the Federal government should get into the mortgage business… or at least insure 40 year, 4% mortgages… and we could give this rate to everyone that is seeking to refinance their homes, and not just the strapped, and now considered deadbeat homeowners by various parts of the country… mostly where rich people are populated… this way we help everyone and we lose the class warfare nonsense that has begun to characterize the debate… in order to keep people in their homes, we also have to reduce the principal as I am sure the Chairman of the FDIC would tell you… so these new mortgages would be for a reduced principal equal to some percentage of the current appraised value of the homes… you lower the interest rates, it doesn’t cut it… people would be right back in the soup… how do we get the banks to swallow that reduction, the principal reduction… we give them another piece of paper… a certificate of equity… which would allow the banks to recapture the lost principal from the original mortgage upon the sale of the house… anything above the certificate of equity would go to the homeowner… as far as the regulators and the stress test are concerned, the certificates they would be money… alright, that is 20% of the mortgages… how about the ones that are cut in pieces… not the whole loans… what about the 80% that are in the CDO’s… very tough… in this case the servicers don’t have the option of making the principal cuts… here the government needs to do whatever it can to incentivise the servicers to make the cuts… it is in the long term interest of their CDO holders cause it will reduce foreclosures… we can’t allow these servicers and CDO holders to hold our whole nation hostage.

Here is the bottom line…

▼   ▼   ▼   ▼   ▼

The Bottom Line!:     We can get out of this mess… with a hopeful, optimistic message that Obama better start talking about… because it is doable… I just gave it to him…. step 1, show the banks forbearance, give them the government notes they need in exchange for preferreds so that they can take the time they need to work out their problems on their own, we can’t do it… step 2, keep homeowners in their homes, have the government guarantee 4%, 40 year mortgages, and refinancing for everyone, you can cut the mortgage give the upside back to the government… drop at all costs… I never want to hear it again… please drop the Lennon/academic nonsense… not that there has ever been much difference between the two about nationalization… President Obama ban it tonight… take what I call the Kremlin Solution off the table once and for all… now you know how exactly how my plan will save the financial system… we need the President to embrace rigor… save the best banks… keep people in their homes with mortgage reductions… and cool it with the glib academic nationalizers who have no plan beyond the seizure… once again, Communist style of our banking system.

Obama listen up! I’ve got a plan to get the US back on track & It’s not nationalization...    First, let’s show the banks forbearance and provide them with net worth certificates Second, The government should guarantee 4% 40-year fixed mortgages & refinancing for everyone.

[verbatim recap]

▼   ▼   ▼   ▼   ▼

Jim went on after this segment to take questions from callers, and responded with his comments...

```````````````````````````````````````````````````````````````````````````````````
Q:    On 40 year mortgages... you brought up 40 year mortgages, how long do you see that going on? Because what I see the 40 year mortgages, it is still a manipulation of the financial instruments out there.

Jim:    18 months… we have got to do this for 18 months… and it is for all comers… I never again want to hear that we are only going to help the deadbeats… no.. everybody who wants this can get it for 18 months, a 4% 40 year refinance… that way there is no more, hey lend me some sugar… I am not helping my neighbor… President Obama follow my two step plan… show banks forbearance… give them the government notes they need… and keep homeowners in their homes by giving everyone 4%, 40 year mortgages… and we will, keep this rally going.

```````````````````````````````````````````````````````````````````````````````````

[verbatim recap]

[end of segment]

Read Jim's next Segment here  

Read Jim's next Segment here