Obama should rethink the stimulus package

Posted by Shyam Moondra

The government has terribly failed the American people. First, former Treasury Secretary Henry Paulson and FED Chairman Ben Bernanke were saying that sub-prime mortgages were not a problem. Then they wanted the bailout money to buy these so called toxic mortgage-based securities from banks to strengthen their balance sheets. But once they got the bailout money, they changed their minds and ended up buying banks' preferred stocks instead. Now the new Treasury Secretary Geithner and Bernanke want more bailout money to buy those toxic securities they were supposed to buy in the first place. I bet even if they buy the current toxic securities, next quarter there will be more new toxic securities on the books of these banks and the FED/Treasury will ask for even more money to buy more of these securities. I don't think the government officials have really understood the problem or thought through what really needed to be done; they are just throwing money and trying different things thinking that something will work. Well, so far it's not working and tax-payers are out of $700 billion, adding to our already very high national debt.

Now comes this monster stimulus package (full of all kinds of pork barrel projects that candidate Obama said he will not allow) worth almost a trillion dollars that will guarantee that our federal debt will be so big that it will take at least ten years to bring it down to a more reasonable level and it will almost guarantee that we will have higher interest rates in the future. The mismanagement of our economy will ensure that American people will have to accept declining living standard for years to come.

Before we talk about the possible solutions, let us take a quick look at what brought us here:

1. Lack of leadership by President Bush and lack of oversight by Congress.
2. Incompetence of FED Chairman Bernanke and former Treasury Secretary Paulson.
3. Greed. Excessive compensation of the CEOs and market manipulation by hedge funds and investment banks.
4. Lack of regulations that led to these toxic mortgage-based securities and credit-default swaps.
5. Lack of enforcement by the SEC under Chairman Cox.

Now this is what we need to do:

1. Have new leaders in Congress and replace Bernanke immediately.
2. Reform regulations. Regulate hedge funds (they must pay their fair share of taxes and report their trading activities), pass stronger laws to prevent stock/commodity market manipulation by big players (revisit short selling/option trading rules, reduce computerized trading by imposing a simple rule that hedge funds/investment banks must hold a stock they buy for at least five business days before they can sell that stock), and monitor risky financial products offered by financial institutions more closely.
3. Impose strict limits on executive compensations for all publicly held companies, small or big and whether or not they receive federal bailout money. The whole system has become corrupt where the Board of Directors (comprised mainly of other active/retired CEOs) grant outlandish compensation packages (cash, stock, perks). No one, even if she/he works 24 hours a day, deserves to make so much money; it's nothing short of looting of shareholders money by a handful of bandits who have become super rich. Why should these CEOs get to make so much more than President Obama, who has the toughest and the most stressful job in the whole world?
4. Change tax laws as they apply to businesses. When Goldman Sachs, using its web of foreign subsidiaries, pays only 10% in taxes, it's so unfair to the rest of the tax-payers. We need to close these tax loop holes and eliminate tax-exempt status of some of the territories.
5. Suspend TARP - it will never solve the bank solvency problem. The banks made so many mistakes (and they still continue to make mistakes, e,g., buying corporate jets and remodeling their offices) that the government will need several trillion dollars to clean-up their balance sheets. The best thing to do now is to let the bad apples fall from the tree. An overwhelming majority of the American people think that the TARP is a huge mistake and it is an unnecessary wasteful spending of taxpayers' money. Nationalization of banks is not a solution - it will create more failed enterprises such as Amtrak and United States Postal Service.
6. Aggressively and vigorously enforce the laws and protect the shareholders. Strengthen the SEC and mandate them to prosecute the wrongdoers mercilessly. Can you imagine what will be the crime rate on the Main Street if the police was not cruising the street? Believe or not, there are more crooks on the Wall Street than on the Main Street. We need to have an environment where these white-collar crooks think twice before they commit any fraud.
7. Solve the fundamental problem of housing which precipitated the economic meltdown in the first place. Find ways to freeze foreclosures and stabilize the housing market (may be the government should buy the houses overhanging the market, as was done during the 1930's depression). Force the lenders to lower the mortgage rates to 4.5% immediately. Come up with a plan which will reduce forced selling of houses and at the same time provide incentives to the people to buy houses, which will, in turn, help stabilize the housing prices. Once the housing prices start to increase again, everything else will fall in place (mortgage securities will become more attractive and it will become easier for banks to sell those securities).
8. We need a stimulus package but not the one passed by the House, which has a lot of wasteful pork barrel spending that Obama said he will stop. The package should include the following elements: Reduce taxes for the middle-class and increase taxes for the super-rich who make more than $500,000 a year; provide a safety net for those who need immediate help such as extended unemployment benefits, help with COBRA heath insurance premiums, and help to elderly people who live on fixed income; infrastructure spending (satisfies an urgent need to repair crumbling roads and bridges and also creates jobs), education spending targeted to improve our students' performance and make college education more affordable (that means better equipping labs etc. but not re-building our school structures; anything that has only a marginal value in improving students' scores is wasteful spending; also need new tax laws to force schools with huge endowments to roll back their tuition fees and increase student aid, or else the government should seize those endowment funds), set-up a program to help the housing industry, as explained above, and finally, spend on some long-term projects in the area of green technology, energy conservation/alternative energy sources, etc.

The stimulus package passed by the House has a lot of wasteful spending pushed by the liberal wing of the Democratic Party, which will hurt them in the next election. I support the efforts of some of the moderate Republican senators who are now trying to clean-up the bill just passed by the House.