Billion Dollar Solution

How to solve the bank insolvency crisis in two easy steps.

Step One, define the problem. The USA buys stuff from overseas. Countries like China, Japan, and Saudi Arabia get a lot of dollars. They have to do something with them. They send some back as cash to buy electronic scrap, but mostly they bought US Savings Bonds. When they heard about the USA deficits, they tried to diversify where they put the dollars, somewhere else safe... and started to buy big bank bonds which were supported by home mortgages. The banks from these countries didn't issue home mortgages themselves. They just bought rolled up mortgages from USA banks.

The USA banks add a margin, and make billions. Every mortgage was an earner, and they did not actually own any insolvent loans for more than a few weeks or months. So they really had no incentive to turn an applicant down. In fact, they issued a lot of credit cards based on Personal Financial Statements relying on the home as the key asset.

Home prices kept going up and everyone was happy. I financed Good Point Recycling on a second mortgage during the first year.

When the USA trade deficit and federal deficits kept growing, it made the China/Japan/Saudi financial experts nervous. But if they started selling their dollars on the open market, the USA dollar would collapse, and they'd lose even more money. If they stopped selling to the USA, they really had not many better alternatives and would probably go into a financial crisis themselves.

1) So the problem can be defined as "the jig is up".

2) Solution:

One solution is bailout with $700M. After all, if the banks collapse, that wipes out individual savings accounts and IRAs and mutual funds. I'm not into that. But it's normal to require some guarantees.

My solution is borrowed from my uncle Eddie Fisher of Hollister Missouri. He told me the whole Federal Reserve debt would be solved overnight if the US Mint made a single three trillion dollar coin and handed it to the Fed Reserve Chairman. It wouldn't be inflationary because, well, there aren't many thing you can buy with a trillion dollar coin, and not many people will make change for it.

What I like about the trillion dollar coin for the bank bailout is that the banks have already demonstrated they are really good at maintaining an asset on the books which is not backed by anything.