It seems to me unlikely that the financial crisis now will not lead to a full-fledged economic crisis, nor that there is much the government can really do about it. The Paulson plan was at best a Hail-Mary pass that incidentally preserves much of the hyper-inflated Wall Street which gave him his own half-billion dollar nest egg.
I will write more about all this and its connection with the rising Attention Economy soon. Meanwhile here is my own “bailout” prescription — unlikely to be adopted and certainly not enough for a full turnaround, but at least a tourniquet on the bleeding— perhaps. Rather than buying up “toxic” assets of the investment banks, leave them to stew in their own juices. Instead do all the following:
1. Freeze all foreclosures for six months. Mandate that no adjustable-rate mortgages increase current rates for that period, and reduce current rates to no more than one-third of actual full-tine residents’ (whether owners or renters) income. Freeze all personal and small business bankruptcy processes and loan collection activities for the same period. Require that no employer lay off workers for the same period, instead ,if necessary, reducing hours across the board. Mandate a six-month holiday for repayment of student loans.
2. Start a new bank to speedily lend businesses who have a five year track record of overall profitability ninety-percent of the the short term loans they can document they have already applied for. Help them with suggestions on how to work out credit deals with suppliers, etc., for the rest. Do this in such away that documentation needed is both reliable (tax records, say) and minimal. Back these with government guarantees, and encourage investors to add to funds. Make this a revolving loan bank.
3. Start a second new bank to aid businesses with poorer records obtain enough loans to stay in business, based on some minimum criteria of the promise they show.
4. Immediately increase taxes by 33% on upper 5% of incomes to help pay for the above.
Over this six-month period new steps will have to be envisioned and thrashed out, with a possible continuance of some of these provisions if no better solutions are found.