An Ancient Bailout Proposal

By Steven C. Ferguson - Econometrics and Programmatic Trade

"Everyone knows that a policy of bailouts will increase their number." William Poole, St. Louis Federal Reserve, 2006

This article sequentially follows Ferguson's piece, "Slapstick Economics."

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The consensus among more than 150 prominent economists seems to be that the Paulson Proposal is decidedly Bush League. In a letter to Congressional leaders, the group rightfully urged lawmakers not to act in haste to pass flawed legislation simply to "subsidize" businesses in the troubled financial sector. Democrats apparently took this advice to heart and are acting with more prudence and fiscal conservatism than self-proclaimed political conservatives.

So for the moment it seems that Trickle-Down Economics, at least in the form proposed by the three stooges, are officially out. Paulson's Whacky Wall Street Special would have been an unmitigated disaster for our country. But in this topsy-turvy world of populist political thinking, it is no surprise to see that a new and unexpected solution to this problem is and has been emerging from normally conservative sources for some time.

Namely, as long as $700 billion dollars will be created out of thin air, perhaps its time to employ the Trickle-UP approach instead. Not a few hundred dollar per capita stimulus package, but an amount per homeowner that would allow taxpayers to repay most or all of this troublesome debt. This frees both bankers AND homeowners of the distress. Tax payments would go up about $3000-$5000 per year per household. And we can then resume doing what we do best in America: spend, spend, spend! Of course, bailout payments should be accompanied by financial planning and oversight to avoid a repeat mistake on the part of either the lender or the borrower. Brokers, appraisers, inspectors and real estate agents should probably listen in while we're at it.

This is not a novel idea. Others, including Dr. Robert McHugh of Main Line Investors, Inc. have been outlining a legitimate trickle-up proposal for nearly a year, as the depression in housing has unfolded. Dr. McHugh offers compelling reasons why this more radical approach would work, where the bank bailout is doomed to repeat the failure of its predecessor actions.

However, the same basic trickle-up idea predates even these proposals. As we approach Rosh Hashanah, perhaps it is time to consider a more ancient and equitable proposal from Mosaic Law. Maybe we should observe the "Year of the Sabbath," which (subject to certain counts) may actually coincide with the year 2008. These ideas are not mentioned here out of any religious pre-disposition. No, this Ancient Bailout Proposal might actually work!

Every Seventh Year, the Sabbath Year is also Called "Year of Release"

Under Mosaic Law, the seventh year is called the year of release, and all debts are to be forgiven. The reason for this law is to relieve the poor.

The Law is to be read at the end of the seventh year, at the Feast of Tabernacles. This would ensure that former debtors and servants were properly taught God's Law so they might not have to become poor again.

If these laws seem so radical and onerous, perhaps we should challenge our own thinking. Why can't we forgive debt? Haven't we forgiven the debt of entire nations? Aren't these bankers in effect asking for their debt to be forgiven? Do these CEOs and hedge fund managers, brokers and deal-makers, who make hundreds of thousands of dollars per year really need to be bailed out at the hands of taxpayers who average less than five per cent of a typical Wall Street pay check?

Search for honest answers to these questions. Gauge the response of the American people. Understand the hypocrisy of the Wall Street bailout request. Then, if and when the legislation passes despite these legitimate concerns and amid a loud public outcry, watch it fail.

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