Friday, January 16, 2009

How to recapitalize a bank

So here's my own personal plan to recapitalize banks. $700 billion divided by 138 million American taxpayers is $5702 each. So you send that amount of money to every taxpayer, with the condition that if there are any debts outstanding, it must be applied to that debt, with the highest interest debt paid first.

Indirectly, then, this form of rebate would recapitalize the banks. They'd get the money second hand anyway through debt payment, but this proposal has several other benefits:

(a) by reducing or eliminating debt payments, you'd free up income for additional consumption, which would have an immediate benefit to the economy.
(b) by reducing or eliminating other debt payments, remaining current on mortgages would be much more manageable--thereby reducing the foreclosure rate.
(c) by paying the highest interest rate first, you'd be removing the riskiest assets from bank balance sheets, thereby improving the soundness of the bank's investments.
(d) it would contribute to the economy-wide deleveraging which would otherwise take a much longer time.

The only real downside I see is that whoever implemented this would be a populist god.

2 Comments:

Blogger Noumenon said...

This would have been a great thing for Hank Paulson to do with the money because he wouldn't have had to tell anyone he was going to do it, which would lead to a big shopping spree.

Funny how Congress would surely have stepped in to stop him if he tried just giving the money to people, but didn't try to make him follow their plan while giving it to banks.

4:55 AM  
Blogger Octavo Dia said...

Funny how Congress would surely have stepped in to stop him if he tried just giving the money to people, but didn't try to make him follow their plan while giving it to banks.

The only real downside I see is that whoever implemented this would be a populist god.

Perhaps my last sentence is why they'd step in. They don't want to have a populist god.

9:42 PM  

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