The Tycoon Report

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4. John M (1 year ago) Is this Spam?

   Good Morning Dylan,
   
   Thank you for the economic calendar.
   
   John A.R.Marden wrote:
   
   However, this change or metamorphosis will never be complete. Gold, �that barbarous relic� Keynes called it, will forever hold sway over the FED�s judgments, determining its successes or foolishness. To allow our enormous housing investment and its credit relevance to the heart of our infrastructure, hitherto accepted and recognized around the world, to collapse may yet cause the price of gold to multiply many times and make fools of us all. It need not happen. Let the FED step to the plate.
   
   John Mahler replies:
   
   John Maynard Keynes was Jacob and you are Esau! Sell your sovereignty and willingly enslave yourself to the FED. "Barbarous Relic"? I think not! The solution you cite "Let the FED step up to the plate" is foolish beyond words. Who do you think runs the shell game? Their solution is to inflate (devalue) the currency. This is as much a solution as it was before the American Revolution when Continentals were more valuable keeping mud out of shoes than use in trade.
   
   
   
   The barbarous relic Mr. Keynes despised is what makes you a free citizen. It means your property is yours for as long as you wish to keep it. Putting your full faith and credit in a quasi-governmental institution means you own nothing and are merely lent your property so long as the tribute payers keep the interest paid down on the debt. Sad you can make so many otherwise insightful remarks and end all with this paragraph.
   
   
   
   If you were a crab in a crab pot watching another escape; you'd pull it back. I am very sorry for you and all Americans who believe what you say.
   
   
   
   The FED cartel of 12 USA banks is the ONLY problem with the economy! Destroy the FED and return Gold to its rightful place as a standard for currency! The madness of the housing bubble could never have happened with the discipline of gold backing currency.
   
   
   
   Siding with John M. Keynes proves you disloyal to the Constitution whose authors declared it to be illegal to make anything but gold and silver a tender in payment of debts.
   
   
   
   The Constitution of the United States of America
   
   Article 1
   
   Section 10
   
   
   
   No state shall enter into any treaty alliance, or confederation; grant letters of marque or reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.
   
   
   
   The very idea of FIAT currency is the emitting of bills of credit. Because it is done by a quasi-governmental body, the FED, seems to get around this issue because the FED is not a state. And rather than prove proposed law by the yardstick of the Constitution, the Supreme Court obfuscates the yardstick in the light of the proposed law! The twelve black robes on the bench of the Supreme Court are no more than twelve grim reapers come to collect the souls of free men and women who still believe they are free citizens of the American Republic.
   
   
   
   The idea that gold is a 'barbarous relic' is the saddest of all travesties, for it is the demarcation twixt slavery and free men.
   
   
   
   I pity you John A. R. Marden for your larcenous greed and support of Central Banking criminality penetrating the Republic like cancer penetrating a human body. The FED owns every tribute slave in the nation. America is not a nation of free men. But a nation which has sold its sovereignty as Mr. Wimpy in the ancient Pop-eye cartoon strip. "For a hamburger today, I will gladly pay you Tuesday", said Mr. Wimpy. Ever wonder where the term "Wimpy" came from? The FED is the institutionalization of Mr. Wimpy.
   
   
   
   John Mahler

3. Dylan (1 year ago) Is this Spam?

   Hey John,
   
   Thanks for leaving such great comments. For starters, you say "throw it away if you like" with respect to your comments and I just want you to know we're not that narrow-minded. Every opinion has value and your comments are some of the best I've seen in quite some time (mind if we republish them in the Tycoon Report)?
   
   I also never put much weight to what the President says in State of the Union speeches, especially when the Congress is a different party. Just my two cents.
   
   -DYLAN JOVINE

2. John (1 year ago) Is this Spam?

   There is also the Federal Reserve Open Market Committee's (FOMC) regular meeting scheduled for January 29/30. And while the FOMC reduced the Fed Funds Rate by 75 basis points last week, speculation is rife that the Fed may reduce rates again.
   
   
   
   If the Fed reduces rates another 25-50 basis, will that be enough to kick the market so that it points upwards? Will it raise fears of inflation? Will it confirm that the Fed is "scared" and isn't sure what to do...
   
   
   
   If there is another rate cut I suspect that there will be a bump up for the markets, but that fears of inflation and the looming(?) recession will temper the bump. I'm paying attention to the earnings announcements and the associated commentary from the CEOs. Sure, the CEOs are trying to paint a picture that benefits their company, but at the same time they can't be too gloomy or they'll get hammered.
   
   
   
   The market is on a hair trigger for any news that even hints of "bad," especially in industry sectors that have been relatively "safe" to date. Housing and Financials are "old" news, what's the next sector to be affected by the current economic climate?
   
   
   
   Finally, what about the President's State of the Union speech tonight? Think there will be any "intersting" items trotted out?
   
   
   
   - John

1. John (1 year ago) Is this Spam?

   Throw it away if you like, but it is pertinent.
   
   Author: JOHN A. R. MARDEN September 27, 2007; Re-edited: January 27, 2007 1325 Lowell Road e-mail: mardenhavenwood|yahoo.com Concord, MA 01742
   
   Critic: �This sounds like a better approach than anything else. It should back-handedly keep all the financial mortgage players alive and provide a win-win solution for everyone.
   
   ****** ****** ******
   
   
   
   The sub-prime banking failure is now too serious a crisis for that classical solution, the market-place correction to absorb in its hallowed laissez-faire manner without causing enormous social damage. A cascade of mortgage foreclosure sales (I remember values falling 40% in 1981) will not only destroy the real estate market but will collapse the ratio structure of mortgage lending to collateral value. In turn this collapse will infect much of our credit card value structure, reaching into the banks themselves, because it is, if indirectly tied (credit scores for example) to those same value ratios. Current banking losses are a warning of much larger losses to come if we allow even the expectancy of real estate foreclosures, let alone the actuality, to continue.
   
   
   
   At best, the looming of foreclosures will induce an economic climate of market stagnation and fear of bank collapse paced by inflationary tendencies as the dollar slides and oil prices rise. Its hallmark will be a negative redistribution of wealth once foreclosure claims are made upon middle class people who lose their credit rating as collapsing housing values and incomes fall below what is needed to cover the debts. Job loss will cause more havoc. Mortgage based securities will be impossible to quantify due to the failure of their referenced collateral. Investors grappling with these indefinable deficits will flood the banking industry with law suits, causing the banks to become too weak to perform their work; and the collapse will entice foreigners to pounce, buying our homes and our industries on the cheap. GM may go to Toyota, Boeing to China, and much of Wall Street may start to move away, perhaps to Dubai.
   
   
   
   Traditional economists tend to consider this process as normal; they even revel in it. They are unwilling or unable to appreciate the economic implications now flowing from the digitalized and globalized waves of change sweeping the world. Such acceptance need not be. With a mere gesture the Federal Reserve Bank (the FED) can institute a controlling administrative covenant with the banks that will stop this havoc and cost nothing; in fact it will increase tax revenue. Once understood, the gesture should receive near 100% approval; however, it requires a change to our thinking pattern about the economy, not so easy for traditionally trained economists and bankers.
   
   Firstly, remember how the sup-prime problem arose. To offset deflation the FED lowered its interest rate to or near to 1% some four years ago causing mortgage brokers, armed with computer analysis models, to entrap, some say hood-wink, foolish borrowers, lenders and investors to make the sub-prime deals. Yet, the foolishness prize may depend upon how the FED controls this crisis. Will its governors be compared to Roosevelt�s �nine old men;� or will they launch new, nimble thought into the changing economics of our time?
   
   
   
   Our bankers, supported by their computer analyses advanced nimbly into the changing times by dividing their loans into derivative parts to sell world-wide by electronic conveyance, using new global encompassing market strategies (�securitize� is the term) with guarantees that implied the best of American credit. This process generated ever more cash for banks to lend as debt of every kind, but most particularly mortgage and consumer debt, the failure of which infects the core of our consumer market economy, 70% of our GDP, and of greater concern, causes world-wide collapse of confidence in the dollar.
   
   
   
   Is the FED�s system at fault? No. The FED will always be faced with searching for that trick laden path between the demons of economic depression and inflation, often made difficult by perverse actions of Congress and the Executive. A failure to balance the budget for eight years and expensive war-begotten foreign policies are timely examples. The FED must also attend to pressures new or unforeseen, such as the digitalizing global economy and the sudden collapse of the dollar as the world�s medium of exchange. Gold, the Euro, some Asian practices and even the Swiss franc are jousting to take over; and meanwhile London, Tokyo, Shanghai, Frankfurt, Singapore, Hong Kong and Paris vie to take market share from Wall Street � a competitive huckstering not unlike what foreign automobile companies have forced upon Detroit. Put all together, these forces will hasten Wall Street�s demise and the dollar�s loss of prestige, competitiveness and value. What is the FED to do?
   
   
   
   Critics fault the FED for lowering the interest rate almost five years ago. They forget that troubles occurring during 2000 to 2003 caused the rate to be lowered towards 1%. The lower interest induced the real estate industry to bloom when confidence in alternate activities fell short. To encourage building when alternative economic activity is lacking makes for sound public policy; and for the reasons suggested below it should be a reserve policy subtly pursued at all times. It not only increases employment; more importantly, it engenders the strength of our economic environment; or, to use that portmanteau word which now includes all production powers and assets of the economy, physical, cultural, legal, political and environmental, namely: our infrastructure.
   
   
   
   Due diligence requires that all the aspects of the infrastructure be examined, monitored, assessed and reassessed for their investment worth, especially now as we enter the new world of global economic encompassment with its digitally manipulative ways and its imposing environmental associations and responsibilities. It is a new world for us all, about which we are inexperienced and know little. As our bankers experiment with as yet not well understood computerized lending techniques, our regulators must find how to exercise effective control over this new and vastly different economic world.
   
   
   
   It may challenge prevailing economic theory, but care of the assets that make up our infrastructure should now become the FED�s most important focus. Such care supersedes its more traditionally limited monetary role because that role has now merged into and depends upon the newly developing relationship between every aspect of the infrastructure and the new digitalized global economy that is overtaking us. Measured quotients of such care may be difficult to come by, but the sub-prime problem reveals a change of role for one particular asset class; namely, the owner occupied dwelling. It has been promoted and is now used by new digitalized banking systems as the ordinary citizens�, the little guy�s savings account. It must be recognized as such. The value of a home and the owner�s servicing of its mortgage debt is the prime element behind deducing a credit score and nurturing its offspring, the credit card. As such the home should now receive the care and status granted in classical economics to the role of savings, hitherto reserved for gold in a vault, cash or near-cash assets. It may be that all post globalization savings hides within measures of the success, the efficiency quotient if you will, of its surrounding infrastructure. It is often claimed that Americans save nothing, whereas the Chinese save as much as 25% of their income. That measure may not be useful unless it is saying that China spends 25% of its income on infrastructure improvement whereas we are allowing ours to wilt, which for the moment appears to be true. This is what needs correcting. Building new and better homes is improvement to the infrastructure and therefore savings.
   
   
   
   Furthermore, many jobs (moving towards 40% of us as we lose industrial work to overseas) are now tied to the infrastructure and its care. These jobs represent work that cannot escape overseas, and at the heart of which lies the building industry. Homes are no longer just another commodity to be left to the vagaries of market-place correction; yet to date the FED has tendered towards that policy: viz. the current FED and worldwide central banks� efforts to generate huge pools of superfund money to help the banks and their derivative market investors solve their conflicts; whereas the mortgagors�, the little guys� concern is scorned and left for market-place correction. After the sale of their homes at foreclosure, their corpses are not worth an autopsy.
   
   
   
   This concept of infrastructure value joining the role of savings and led by the value of the home, harkens back a third of a century to President Nixon�s decision to de-list the dollar from gold; thus creating a fiat money. The dollar, marrying itself to its own infrastructure, thrust gold aside to become the world�s reserve currency. This relationship is now falling apart as the real estate and credit markets shatter, but need it? How to stabilize our economy benignly and quickly is the immediate question?
   
   
   
   The answer begins with recognition that the role of the home constitutes a large portion of the value of our or any infrastructure�s foundation. It reflects not only our personal and political well-being, but that of our schools, transportation, local government and social communication, our very culture if you will. When considered all together, its power and strength is the measure of our nation�s true savings.
   
   
   
   Today, many bankers, economists, social critics and, of course, the gold-bugs still hearken to classical values, in particular the discipline rendered by the scarcity of gold. I was among them; but now, and with abrupt suddenness I recognize that we face an economic world about which we are all unschooled. Not long ago it was claimed that when the U S economy sneezes the rest of the world catches pneumonia. Now, barely months onward, we find ourselves in a global economy of infinite connectivity where the command and control of knowledge, plans, and vast quantities of real values (oil, gold, raw metals, food, real estate, etc) and every existing fiat money value can be sent about the world, changed, bought, bargained or exchanged by pressing buttons, 24/7 as they say. Our ignorance about the growing and pervasive complexity of this market is overwhelming. Authorities need take care lest they use principals that economists and bankers may still enshrine, but no longer work. The economic theories that guided the past may not be appropriate for the age that so quickly comes before us.
   
   
   
   Many questions loom, both internal and international. For example, if we encourage building by subsidy or low interest lending (the enormous aid to New Orleans and the Gulf coast, for example) should we not seek a better result by requiring construction to conform to high quality design codes (50 to 100 year standards and green architecture)? Would not this be better than financing the tic-tac structures that community codes and audacious laws now allow and hurricanes easily destroy? Internationally, could it be that better treatment of their infrastructure, physically, culturally, legally, politically or environmentally, rather than just gold reserves, tells us why and how it is that London, Hong Kong, Singapore, Switzerland and perhaps elsewhere now attract new investment wealth more successfully than Wall Street? Such competition is built into the near future and should be of acute concern; however, these worries are a corollary to the immediate concern, the need to stop the collapse of US real estate values and its dependent credit markets.
   
   
   
   We need new thought. We may well be at a pivot point in theoretical economic understanding as we were during the Great Depression when (1936) John Maynard Keynes published his General Theory. President Roosevelt consulted him, but true to his generation�s mindset, (it hovered between classical economics and mercantilism), he found Keynes� theory �obscure.� Roosevelt did begin public works programs by building dams and roads; he established the Tennessee Valley Authority, the CCC, the WPA and the FHA; yet his schemes, often criticized as government meddling in the sacrosanct private market-place and derogatively named bail-outs, never generated sufficient cash to begin to restore, or if you prefer it, to bail-out the private sector. The economy stayed in depression. However, the needed cash was soon to be provided by much larger government meddling in the market-place in the form of purchasing world-wide destruction of lives and property. Keynes may have preferred otherwise, but his General Theory was proven by that most costly bail-out ever, the expensive, wasteful but yet job and cash generating societal disaster, Word War II. Thereupon, the Keynesian bail-out became an acceptable tool by the FED, the splint to mend the economic body�s broken leg, as it were; although it lingered on in many minds as a perversion of the hallowed rite of market-place correction. However, a third of a century after Roosevelt called Keynes �obscure,� President Nixon would say: �We are all Keynesians now.�
   
   
   
   Another third of a century has passed, bringing changes that need new thought and explanation. Lawrence Summers is right to contend in a recent article that �now is not the time for the authorities to get religion;� yet aspects of economic fundamentalism are politically popular and still hold sway in many minds, including those of President Bush, many bankers, and perhaps Treasury Secretary Paulson and the FED governors. At its dogmatic base is the idea that whether making their own dire mistakes or being �hoodwinked� and led to slaughter by the FED�s low interest policies, the mortgagors, the debtors, those little guys, but not their lenders, deserve to lose their homes on the auction block of market-place correction. Yet, what if that process imposes such an onslaught of loss as to destroy normal value relationships between real estate, the dollar and the other structures of world credit, thereby infecting the entire market-place and attacking the value of all of Wall Street�s assets? We all lose. Yet some still ask: �Why should we bail-out losers?� Was that question raised for the various banks, Long Term Capital Management, the Lockheed Martin and Chrysler companies, and New York City�s institutions, all of them beneficiaries of past bail-outs and thereby exempted from the pangs of market-place correction? Not many among them were little guys.
   
   
   
   To let the sub-prime crisis go unchecked, awaiting market-place correction will cause much greater harm than the fate of Long Term Capital Management ever proffered. Today�s crisis will not only collapse the real estate market and depress consumer spending, 70% of our GDP, but destroy Wall Street�s newly developing relationship with those two newly developing circumstances, the digital revolution and the global economy. The result will be perilous.
   
   
   
   It may addle traditional economic moralists, but this threat can be stopped by a virtual gesture from the FED in favor of the mortgagors, the little guy debtors, rather than to banking tycoons or their institutions, who will claim far more than gesture, such as large infusions of public money, an action which may already be occurring and will replicate Roosevelt�s error. It eliminates the leverage flow from helping the mortgagors, a flow which in turn will also help the banks and bring a buoyant resurgence to the economy, perhaps requiring the discount rate to rise as the economy rebounds.
   
   
   
   Furthermore, this gesture can be phased to cost the Treasury nothing, because the mortgagors, those little guys, will strive mightily to own their homes if given the chance; and the gesture can be made to require the banks not only to cause, but to reinforce that chance to the point of near certainty. Instead of lowering the discount interest rate in an effort to cure the sub-prime crisis (a useful process for other purposes), the US Treasury, acting through the FED, should cause the banks to reduce their current rate of interest charged for all owner occupied dwelling mortgages from the jumbo to that of the trailer home, to a rate not more than the Treasury�s T-bill rate, and to zero for at least one, but perhaps more, three month interval determined by the FED as it watches for result. This reduction of interest should span a three to five year period, then be continued or abandoned at the FED�s discretion. This process will provide repair to the collapsing foundation of our economic house of cards, whereas the bank stimulus proposals buy expensive repair to the upper floors while the foundation is left to crumble; and the current cash distribution proposed by our government appears to offer more support to the Chinese market than our own crushing problem. How silly can we be?
   
   
   
   In exchange for the banks to agree (i) to such a reduction of interest, (ii) to continue to service the mortgages, and (iii) to assure the FED that each mortgage will remain in good fiscal standing (reduced mortgage cost, real estate taxes and insurance payments duly made), the FED would guarantee the outstanding principal balance of every such mortgage for the initial three to five year period, the time to be extendable at the FED�s discretion. Call it a phased guarantee against which the banks can immediately discount the net value of their mortgage investments at a cost not to exceed the 0% to the T-bill rate of interest as the FED may determine to be appropriate for the original mortgages; less, to be generous, a nominal fee for servicing those discounted mortgages. The banks can thereby retrieve their lending capital at almost no cost (they must guarantee that the mortgagors do not default); and of equal attraction, this process can be covered by a simple administrative covenant.
   
   
   
   I emphasize all owner occupied residential mortgages as an initial single class action group. Do not make distinctions for it is the real estate, the source collateral behind most of the outstanding credit problems, which needs the protection. Let the wealthy and more particularly the large number of in-betweens, (those people with mortgages currently in good standing but which may fall into default if the economic climate deteriorates or the real estate values collapse further), benefit, and possibly rental dwelling properties may need inclusion as another class action group, as opposed, but yet subject to similar consideration if the need remains, to loans collateralized by second homes, investment and industrial properties. In any event, allow the wealthy to gain from their mortgaged dwellings because they provide the cash load, that cornel ingredient which Roosevelt�s bail-out schemes lacked � cash ultimately, as you remember, derived from the war. The cash from the wealthy provides the power to beget economic uplift; whereas distinctions will only invite lawyers to foul the effort.
   
   
   
   Such stimulus for the sub-prime crisis would be productive. It would replace the doubtful accounting figures ascribed to a looming cascade of real estate foreclosures with a large inflow of real cash, the banks� own cash. This fact would revive the asset quality and quantification of all the mortgaged based securities and make dispute settlement rationally and rapidly possible.
   
   
   
   Of course, a few mortgages may be so overvalued that neither the owner nor the bank would normally be interested in making and keeping the mortgage fiscally sound for any ascribed period. Yet, since every such mortgage loses the phased guarantee protection once foreclosure is commenced, and since the banks would thereby have to refund to the FED any discounted claim against that mortgage�s principal plus interest, the incentive to foreclose would be reduced, perhaps near to none. Time would be allowed to repair the damage.
   
   
   
   Certainly all the marginal mortgages would now survive, some perhaps with the help of the bank or another lender making an equity loan (not guaranteed) to the owner to help pay the reduced servicing costs, some to investors willing to buy properties subject to the FED�s favorable mortgage contract, and some no doubt held by the bank itself as owner in possession. The relationship between the banks, the FED, the original mortgagors or their successors would now become one of mutual help, whereby each party has its own part to play in support of the other. The oncoming cascade of foreclosures would stop.
   
   
   
   The issue of fairness, influenced by our historic banking culture that once espoused the debtors� prison, (Muslims may have some inhibitions, but I�ve never heard of a lender�s prison) keeps cropping up. Why forgive the mortgagors their interest payments? However, the purpose of the bail-out should not concern itself with the issue of fairness allocation; its purpose is to be the splint for the economy�s broken leg, to stop economic disaster in the public domain from hurting everyone. It should not seem odd to allow the mortgagors, those little guys the same claim as the past beneficiaries; namely, they just happen to be in the right place at the right time. Furthermore, the income tax return to the Treasury on what otherwise constitutes an enormous sum of mortgagors� personal interest deductions will now produce significant tax gain for the government, a vast contrast to the stimuli packages our leaders appear to propose. If the issue of fairness is to be considered, the increased tax base for the Treasury surely trumps it.
   
   
   
   The FED will probably never pay out on a phased guarantee as its terms require that the mortgage must be kept in good fiscal standing (the taxes and insurance costs paid and no liens ahead of the mortgage), in effect guaranteed by the banks, until the FED chooses to end its phased guarantee, which could extend to the life of the mortgage. In practice, assuming an active healthy economy, it is likely that long before even the suggested minimum of an initial three years of guarantee pass, accepted inflation plus the capital repayments collected from the mortgagors will add sufficient equity value to the real estate to cause the market to return to its normal expectation, thereby leveling out any price distortion caused by over valuations. As pointed out earlier, but worthy of re-mention, the onslaught of market-place correction foreclosures would now be avoided and the banks will have cash in their vaults, thereby allowing inter-institutional settlement to be based on fact rather than fear. It is an important win for the banks and the financial institutions; otherwise they face unquantifiable legal entanglement as they struggle with immeasurable losses that in consequence endanger the world-wide economy.
   
   
   
   The FED, remember, is not buying the mortgages; it is using its credit power as a guarantor to gather-in and protect all resident home owners� positions, giving them the umbrella protection of paying the low to zero interest charge for such time as the FED may deem necessary. It is a gesture that will release enormous sums of discounted cash to the banks, but take nothing from the taxpayer because comparatively few mortgagors will abandon their homes; and if they do, ownership of most all of the defaulting mortgaged properties would pass to the banks or to new investor groups, who would bring the mortgage current by paying the outstanding obligations rather than lose the low interest benefits and the guarantee.
   
   
   
   In this manner the FED�s liability is limited and the Treasury�s gain from taxes on what was formerly deductable interest payments should provide more gain than any associated cost. As a result of this phased guarantee our entrepreneurs with the help of our bankers may once again promote our economy with sufficient success to require the FED to raise its discount rate. Administered thus, the phased guarantee is not an economic burden, but a likely boon; it is a gesture that forces all parties to bring forth a mutually useful solution for what otherwise can be total economic disaster.
   
   
   
   What can we gain from such a plan?
   
   
   
   A. The gesture would not only save the dollar from further collapse; it will harbor economic stimulation as many wealthier mortgagors would invest their increasing cash positions. It would also avoid any temptation to try to remedy the problem by infusions of taxpayers� cash into the banks or by making further discount rate reductions for this purpose. Indeed, its success may require raising that rate, depending perhaps on international reaction to this policy maneuver.
   
   
   
   The purpose of this bail-out is to stop what otherwise may become an unprecedented downward spiral market collapse due to and augmented by a surfeit of foreclosure sales beginning in the USA and spreading around the world. I recall housing values falling in 1981 and 1989 as much as 40% in some areas because the sudden cascade of foreclosure sales destroyed the normal real estate market - and I remember a lawyer who boasted how he organized four residential auction sales per day for a bank. He had religion. From a business perspective at that time, consider the foreclosure of the Wang Laboratories office building in Lowell, Massachusetts. It was almost new, costing millions, but was auctioned off for half a million. If these problems spread uncontrollably, the result will not be a mere old time economic panic; it will be globalized to become a world-wide economic rout. The FED must remove the risk. The fire must be put out, never mind its cause.
   
   
   
   B. The banks and their derivative customers, the Hedge Funds, Pensions, Trusts, etc. would quickly discover that the original investment cost for most of their mortgage securities was now safely converted into U.S guaranteed collateral near par to a T-bill; in return, of course, for their giving up the profit that the collapse may have already taken away or is about to annul. Their market would now be protected from further collapse, enabling the banks to access large sums of new money by discounting their protected but no longer profitable mortgage holdings with the FED. Thereby the banks would regain their original capital with which they can work out the existing loans as necessary, settle with their derivative customers and resume their role as lenders, seeking, hopefully with more due diligence and better computer models, our next economic advance. Confidence will quickly return.
   
   
   
   However, do not under-estimate the short-sighted power of bankers, their Washington lobbyists and their relationship with the FED. They form a group or cabal of like-minded people with a bias towards arrogance and their learning. They may feel ill served at not having a taxpayer�s financed cash bail-out effort fall into their laps. They will argue that the phased guarantee places the onus for the sub-prime crisis more upon them (or their lending experiments) rather than upon that historical culprit, that erstwhile potential prisoner, the little guy debtor; and they are likely to complain of being deprived of the profit from their duly performing, conventional mortgages. They may continue to argue for easy FED credit for themselves (superfund or tax relief stimulus money for example) or else allow them the ability to retain liens against the mortgagors in lieu of their expected profit had the crisis not arisen. Such a compromise may seem arguable, but in reality it will fail to provide the necessary economic buoyancy and confidence to avert disaster. As policy it would become a too little, too late effort, perhaps postponing the cascade of foreclosures for a time, but letting the crisis fester on, requiring ever more bail-out schemes as the situation worsens.
   
   
   
   Such ideas constitute current Washington talk. They satisfy the politicians�, bankers� and lobbyists� sense of doing business as usual; whereas attending to the idea that the mortgagors� interest should be lowered and perhaps forgiven for one or more three month periods while the FED examines the result is radical thought, perhaps dangerous to powerful interests even if it were to stop a total disaster.
   
   
   
   However, once the Treasury and the FED grant relief to the entire class of owner / occupant mortgage debtors, the bankers, in face of devastating public opinion, would quickly withdraw objection and work together with the mortgagors to satisfy the terms of the FED�s phased guarantee. The plan would not only let the vast majority of debtors remain solvent, it would also enable the bankers to solve their own problems arising from their derivative sales as well as allow them to boost trade and fiscal confidence by reinvesting what they may feel is the same money for a second time.
   
   
   
   C. Most all the mortgagors, who, hood-winked or not, tend to believe the words of their bankers as to the value of their homes, would now retain their home ownership and enjoy a functioning economy. Some might sell their home subject to the existing mortgage modified by the terms of the phased guarantee; but the volume of such sales would soon fall to that of an orderly, normal real estate market, as it should. Others, scared by these events, will likely acquire additional equity in their homes as opportunity moves ahead. A few grossly over-mortgaged properties may head for foreclosure, but the number would be limited, quickly declining to a normally expected figure.
   
   
   
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   Standing as economic guardian of our economy and with the ability to look around the world for precept and example, the FED should elevate its concern for the efficiency and structure of our national infrastructure, its power and strength now in all probability the essence of any real measure of our nation�s savings. It should recognize the relevance of the home to the growth and stability of this savings, perhaps bringing forth a metamorphosis in economic theory and thought.
   
   
   
   Can or will this sub-prime crisis tell us, like a genie coming out of the bottle, that a home is more than a mere commodity, and that the influence of well guided low interest lending policies can and should be a powerful tool to enhance better design and quality for our infrastructure�s future growth? We are entering an environmentally sensitive and economically competitive world arena where politics will sparkle, and where the digitally controlled global economy will introduce even more new concerns, worries and sensations. That genie in the bottle says: we better prepare for it.
   
   
   
   On the world stage, Zimbabwe may be an example of a collapsed or collapsing infrastructure, whereas Dubai may be assembling a new infrastructure with intention to develop an entry position into the functioning of the world�s marketplace. Other communities are following suite, each competing with us and one another as globalization takes its hold. To retain and secure our position at or near the head of the line will need new nimble thought and action by the FED. Take heed Governors lest you allow old-fashioned attitudes and thought to bring on calamity, letting our infrastructure dwindle towards that of Zimbabwe and the ownership of our finest industries and assets slip off-shore.
   
   
   
   Instead of trying to write laws that tell bankers how to lend money (they too will learn from experience), these observations and their implications should prompt Congress to restructure the FHA (including Fannie Mae and Freddie Mac), inaugurating a new FED agency with the power to advocate and thereby help develop our infrastructure, a whole new subject in itself. It would also be a most useful tool for the FED as future problems with the digital- age marketplace unfold. They are bound to come.
   
   
   
   However, this change or metamorphosis will never be complete. Gold, �that barbarous relic� Keynes called it, will forever hold sway over the FED�s judgments, determining its successes or foolishness. To allow our enormous housing investment and its credit relevance to the heart of our infrastructure, hitherto accepted and recognized around the world, to collapse may yet cause the price of gold to multiply many times and make fools of us all. It need not happen. Let the FED step to the plate.

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