Einstein Shows Us The Way
By Richard Olivastro
January 26, 2009
Most people have heard - and many like to paraphrase - Albert Einstein's definition of insanity: "doing the same thing repeatedly and expecting different results".
Most Americans have already concluded that the federal government's attempted bailout of the banking industry is inappropriate and wrong. And, many taxpayers are so upset that it is understandable that 'insane' comes to their mind as an apt descriptor of the banking situation and how government has handled it.
Yes, there is a severe banking crisis; and, financial catastrophe remains a distinct possibility. Especially if government and banking officials don't get their heads out of the proverbial sand and act in the singular interest of the American people. It is here, that Einstein's wisdom, once again, shows us the way.
As 'Uncle' Albert said, "We cannot solve our problems with the same thinking we used when we created them".
To stimulate the fresh thinking needed on the part of government and banking officials, we need to inject complete sunshine, fresh air, and full awareness.
How to do that?
America's Citizens must insist that the 'tarp come off all TARP payments' immediately. All details for each payment distributed via the Troubled Assets Relief Program must be fully disclosed to the American public. That's the place to start.
Then, replicate the same full disclosure for all other government payouts, loans, guarantees, etc. issued to any entity in all industries.
As we commented here two weeks ago, "Almost half... about $300 Billion Dollars has been delivered to banks and other financial institutions, which as businesses, were - and remain - mismanaged and ill-advised".
Now, banking industry experts have confirmed that assessment, as market strategists tell us that "the banks are in worse shape than they were six months ago". Joe Battipaglia with Stifel Nicolaus added, "The size of the problem is growing faster than the banks' ability to handle it".
Why is that?
Because both incumbent government politicos and banking heads refuse to follow Uncle Albert's sage advice, "We cannot solve our problems with the same thinking we used when we created them".
Instead, both interest groups continue to play out the hands they dealt to themselves and each other, clinging stubbornly to their original motivations and methods.
They created the problems, leveraged each other's interests for their own reasons, and gains, then marshaled the executive branch's reactionary response to a financial meltdown that was seeded by their manipulation of the domestic housing market by legislating and manipulating the Community Reinvestment Act - CRA, propagating subprime loans, packaging toxic mortgage assets, credit default swaps - the list goes on.
Meanwhile, as we also advised two weeks ago, "the government equity infusion via TARP -- intended to stimulate credit lending -- instead, sits idle as bank officials prefer to spruce up the appearance of their balance sheets instead of lending to consumers and businesses".
As a result, many Americans have rightly concluded that TARP is simply another example of government pork. And, worse, the problems with the domestic housing market and the banking industry may be yet another way for central planners to squeeze homeowners and taxpayers, while tinkering with the free enterprise system and aggressively expanding the role, power, and reach of what already is excessive government.
So, what to do:
Stop the capital injections by government to the banks. That doesn't work.
Let the bad banks fail. Productive, competent, ethical banks that invest in people and businesses will survive and thrive.
Create Resolution Trust Company #2. RTC-2, like the original, would be responsible for liquidating real estate assets, including mortgage loans, which had been assets of failed banks. Using "equity partnerships", the original RTC closed or otherwise resolved 747 thrifts with total assets of $394 billion during its stand alone existence from 1989 thru 1995. Allow - but do not pressure -- viable financial lenders to consider offering refinancing of mortgages originated by failed banks directly to troubled homeowners using an "equity sharing" model that would be developed by RTC-2.
Remove the FDIC cap on Account Deposits. This protects all depositors including those investors who are typically most risk-adverse.
Cut and Cancel Taxes: Cut Capital Gains Rates; Cut Corporate Income Rates; and Cut Personal Income Rates; and, Cancel Taxes on Interest Earned from All Savings; Cancel Inheritance Taxes; and Cancel the so-called Earned Income Tax Credit.
And - for those mindful of founding father Benjamin Franklin's warning us, "that one day we would be tenants on the land our fathers owned" - pass legislation that precludes any financial institution -- including subsidiary or merged entities -- that accepted any government bailout monies, loans, guarantees, etc. from purchasing or investing in any residential or commercial property that was affected by foreclosure, short-sale, or owner-abandonment, beginning on or after January 1, 2008; unless and until all government monies and guarantees have been fully repaid and reimbursed to the federal government.
Yes, we have serious problems. What we need is serious changes in the way government and banking officials think and act. Or, those individuals should step aside.
'We the People' can overcome the banking crisis and effectively stimulate our domestic economy. Our first step is to demand new - true free market - thinking by government and business leaders.
I welcome your thoughts and ideas, here or via email, on how 'We the People' can overcome the banking crisis and effectively stimulate our domestic economy. I'll include those that seem most innovative, and mindful of Uncle Albert's charge: "We cannot solve our problems with the same thinking we used when we created them".
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Richard Olivastro is a professional member of the National Speakers Association, president of Olivastro Communications - an executive leadership development company - and founder of Citizens For Change.
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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.