My Idea to Help the Economy and the Credit Crunch

Consumer savings are way up.  Doesn’t more savings mean more money in banks to lend ? Isn’t that a good thing ?

Here is an idea for you. Create rewards for putting those savings in lending institutions, and reward the institutions for lending it out. 

Make the interest earned on savings accounts  and CDs   tax free for individuals and corporations if the funds are deposited with lending institutions  that lend out 100pct of those funds.  Its a simple concept. If we are going to increase our savings, lets make sure that money is recycled into the economy and frees up credit.

Here is how I see it.  As of June of ’08, there were 7 TRILLION dollars in deposits held by lending institutions.  If that number can grow by any percent, and be recycled into the economy through incentives, it completely changes the dynamics of an economic incentive plan.  Plus, Im certain that banks would rather take in funds through deposits than by being required to pay 10pct for government bailout money.

More importantly, it works in a manner that we all understand. The only certainy about the proposed stimulus programs is their uncertainty and the queasy feelings we all will have as we watch the rules of unintended consequences create headlines on a weekly basis.

73 thoughts on “My Idea to Help the Economy and the Credit Crunch

  1. Mark,

    You haven’t touched this subject yet, and I’m wondering why. Many people in this thread and your other economics related threads have suggested legalization and taxation of Marijuana. Many have also suggested raising taxes on alcohol (something that hasn’t been done in 37 years in our state!).

    I’ve noticed you’ve shyed away from these topics. Are there controversial ideas out there that even Mark Cuban is afraid to take on? I’m guessing that there are thousands of non-marijuana smokers who would love to see some tax revenue generated from all the stoners they’re surrounded by. I believe that I read somewhere that weed is now the biggest cash crop in Canada. Bigger than soy or wheat. Why isn’t there a futures market for it?

    None of the drunk people jumped up and screamed bloody murder when the health nuts got cigarettes taxed to the hilt. So it should be no problem when the price of a six-pack triples. I would make the same arguments to them. Look at the cost to society. Why should we all pay for more cops, judges, prison guards, doctors and rehab? Lets fund all that on the backs of drinkers. Just think of how many will quit because they can’t afford it! (Please note extreme sarcasm).

    I think its been mentioned here enough times to warrant a reply. I would love to see you dedicate a post to this subject. If nothing else, perhaps it would cut down on the number of people who bring this up every time you want to start a discussion about the economy. Based on the number of people who suggest legaliazation here and in other forums, I would say its a subject that has validity and is gaining serious momentum. I would love to hear your take on this subject in a dedicated thread.

    It’s time we had this discussion, what say you?

    Comment by cidman2001 -

  2. Once again the so called experts are dumbfounded with what to do to fix the economy, take AIG- if they have the best and the brightest running that company then God help us all. those executives are terrible, they cant make a viable business model if they had to,and if our goverment is having to be held hostage or the world economy will colapse with the demise of AIG then you have to wonder if AIG is actually the powerhouse of our entire world financial strength. at this rate they will burn through 1 trillion dollars just for AIG?? this is so ridiculous. The simplist plan would be to lower the tax rate for everyone, pay a basic flat rate, keep all the deductions in place, make rent tax dedutable, as over 6 million people will be renting this year that have gone BROKE. remember what ever the goverment says the unemployment rate is , it is double that number, they dont take into account self employed, and people that do not qualify for unemployment, I guess those 4 million dont count either huh?? We need to let the peicies fall, GM, Chrysler, will be gobbled up and made viable again, by the way, since all the white collar exxecutives that were fired in the last 10 months are eligible to start building roads and bridges, where are the illegal alliens going to work?? Basic principles of good business need to be in place here, would you get a bonus if your company was not profitable?? why do all the companies we are bailing out get to receive bonuses?? this is crazy.. this can be fixed, but we have to get the right people in place.

    Comment by richman895 -

  3. So called experts seem to forget that what drives the economy are the consumers, regular folks like you and me.

    Incentives should come from the bottom -> up.

    Reduce all taxbrackets. Simple enough.
    More money in the pocket of the consumer, more demand for businesses. I need less taxfree accounts than I need more money in my pocket.

    And no, they are not the same thing.

    Comment by Allan -

  4. Create incentives that relate to income tax refunds.

    All refund checks could be direct deposited into a 4% interest bearing account, allow the taxpayer a chance to match the amount, make that all interest free as long as the account is only spent on medical bills or insurance, or is used one day in the future as a deposit on a new home.

    Also, make renting tax deductible as well.

    Comment by Daily PUMA -

  5. great ideas – there is a new platform to express ideas myidea.co.in

    Comment by Rahul -

  6. Great ideas!

    Comment by keldrin -

  7. Great idea MC! That incentive would surely motivate me to move my matress savings into a leanding institution, but then what would I use for a pillow? Thank you

    Comment by Avsa -

  8. The first thing is you bring 30 yr. fixed rates down to 4.5% for only 6 months, after that period let the public know rates will rise very slowly but steadily. This will create an urgency.After the 1 st. full month the media has to start emphasiseing that house prices are at the lowest point & people are starting to buy & house prices are going to start to rise. after the second month the media needs to start saying we are starting to come out of the recession. The main problem here is the bad publicity, the continuing bad news & no light at the end of the tunnel. Everything else will start falling into place.

    Comment by SGP -

  9. the bail should done by the usa voteing public instead of big corporations. if the goverment divided the 800 billion dollar bailout by the number of voteing public in the usa. and gave each person a large amount of money to spend on bills and buying new things they need. the public would pay off loans, bills, mortages buy new cars houses and stimulate the ecomney. this would help everyone, and stimulate the economey.

    Comment by tony -

  10. Banks’ ability to lend based on unsecured deposits is part of the problem, and definitely not a solution. Google “Money as Debt” to see how banks create fake loan money out of thin air that distorts the economy, always in their favor. The fact that they have failed in a system so distorted in their favor shows what idiot managers they really are. The best way to make tax policy an incentive to save is to eliminate the income (production) tax, and move entirely to consumption taxes.

    Comment by TakeyMcTaker -

  11. The key to the economy is the housing industry. There are significant numbers of qualified, motivated first home buyers that need to purchase a home to solve a housing need. The media has conditined them to believe that they need a 20% down payment with a 700+ credit score. Simply not true. Once they learn that they can obtain a fixed rate mortage of 5.5%, with 3.5% down (FHA loan) with a credit score of 600, they will enter the market and buy. This will filter up to move-up buyers who will then buy new homes and get the new construction industry back to work. No cost to the taxpayers.

    Comment by Fred Doleac -

  12. Rule of unintended consequences.
    Anything the government does in a big way will eventually backfire. In an attempt to stabilize house values Big Gov setup Freddie Mac and Fannie May. How stabilizing were they in the long run?

    Rick

    Comment by Rick Bicycle Hangar -

  13. Pingback: Unlikely Words » Mark Cuban’s Idea To Help The Credit Crunch

  14. Pingback: Wanting More » Blog Archive » Links 2008-02-10

  15. Pingback: Cool Videos I’ve found + Other stuff « Life of Younkin

  16. The simpliest way to solve the credit crisis is to allow wealthy foreign nationals
    green cards in exchange for purchasing real estate. The foreigner would make an
    application with the INS and at the same time deposit $1 million into an escrow
    account. The INS has 90 days to do a background check. Then the foreigner
    has 90 days after approval to spend the $1 million on real estate. Once the
    real estate transaction is closed, the foreigner would get his/her green card.
    Do this for a million people and you would have a trillion dollars in liquidity
    into the banks.

    Comment by Frank -

  17. If we’re all saving..who’s borrowing? …and why would we want to borrow if we’re saving? The only people who would want to borrow would be the high risk folks who we shouldn’t be lending money to in the first place. Have we learned nothing?

    I think they should take a trillion dollars and divide it evenly between every taxpayer and let us spend it how we see fit. If we save it great, if we spend it …great! Giving a trillion dollars to the crooks that got us into this mess just doesn’t make sense.

    Comment by Cid Sinclair -

  18. I believe this bail-out is a band aid for a much larger problem. World wide, people are suffering the impacts of a very weak economy. It is time for a world wide solution.

    Through out history economies have been based on growth and expansion. The ever dwindling resources of our planet (energy, food and places to grow it, to name just two), and the negative impact this has on our environment, will not sustain an expanding economy. Rather, it can only serve to foster more of the same economic depression and conflict between nations in the future.

    It is proposed to spend billions of dollars in the USA and in other countries for various fixes to this mess. Let us as a world spend all that money on an expansion of historic dimensions. One that would have global impact and usher in a new era of prosperity for all mankind. I believe mankind, as a whole, should begin a massive effort to utilize and colonize space.

    We must throw off the ways of thinking of our ancestors, and the failed idioms of today. Expansion off our finite world will create endless opportunities for job creation and a better standard of living for all mankind. Through the utilization of the limitless resources of the limitless oceans of outer space, we can also spare our home world of the devastating effects caused by its exploitation.

    It is time for a new beginning for all mankind. It will take an unprecedented effort of cooperation by all mankind to achieve it.

    Comment by James -

  19. Mark,

    One thing we all agree on is that we made a mistake! The creditors lend without oversight and the
    borrowers borrowed without self control. So, how are we going to
    learn to not allow this to happen again, if we don’t suffer through it?
    No pain, No gain! we should all take the next 10 years to pay for the last 40 years of greed
    ruling our lives! I think trying to save ourselves we will fall back into a deeper downfall. Bottom line, no more letting the next generation fix our problems. Lets just bring it all down and rebuild it? no saving anyone! except, of course, you and me!🙂

    Comment by Mitchell -

  20. another thing to mull over, look up the Bonus plans for the top 10 bank CEO’s for 2009, they will get bonuses even if the bank loses money.. isn’t a bonus based upon profitability performance?? I wish I would get a bonus even if My company lost money>> are you kidding me??

    Comment by Richard -

  21. Ok, this is a simple and easy solution, let the Gov issue $3000 Debit cards to all verifiable Tazpayers that can only be spent on purchases, ( cant just get cash from an ATM. this money would haHAVE to be used to buy goods, if you cant get cash then you would have to use it on products to buy, like TV,s Clothes, downpayments on cars, furniture and such, the Gov will put 700B into the banking system which will only captivate it and put it into reserves. The only way they will loan again is to Solvent Cash positive companies and Individuals. the problem is that Most people live way beyond their means and dont have enough savings to make a dent on the problem if they were to put all their cash into savings accounts. Remember we have and will have to play on the Credit for purchase model, We have a new breed of consumer which is soley based on buying on CREDIT. Now that the credit train has stopped Look at what happens!! So why invent a new wheel?? the only wayt to get out of this is to stimulate spending, that means the MASSES have to have access to credit, not just the 2% left that has credit scores over 670!!

    Comment by Richard -

  22. Sounds great on paper, but I think the lending companies are using
    the money to pay back on loans that have already gone amuch. The only
    way for this economy to come is to stop lending money that doesnt exist.
    I have seen some of these 1/2 million dollar house loans, I wouldnt pay
    100k for them.

    Comment by JAZD Chemicals -

  23. I realize that there are numerous options on helping the economy but the one option I stronly disagree with is the nationalization of the banks. After having already spent 350bn via Tarp funds the idea of nationalizing banks should not even be a consideration for the government. Have we not seen the nationalization effects from other countries that chose to go down this path, how is Japan doing? France?India? The US banking industry today is one of the most regulated in the country, the housing bubble was caused largely by the government forcing banks to increase lending to the sub prime population. Once a bank is nationalized all decisions on investments must be approved by the government, there is no way that anyone in office can decide which investment is good and which is not. These decisions will most likely be made based on political influence, whoever lobbies most will get the prize. That is probably not a good idea for the future entrepreneurs of America nor any small business. During the 1990s banks were encouraged to loosen lending by the strengthening of the CRA act, this enabled individuals with insufficient funds to attain mortgages. Fast forward to today and we have the end result of reckless lending for nearly a decade. Still this could have all been prevented if not for the issuance of FAS157 effective November 15,2007 by the SEC and FASB . In the current market it would not be wise to sell any of the troubled assets based on fair market valuation as there are not enough buyers which drastically reduces the price of the asset.These assets should be removed from balance sheets, by creating a bad bank and transferring assets for 90 cents on the dollar although these assets may very well be valued at 50 or 40 cents on the dollar. By allowing banks to transfer these assets it will improve transparency and most importantly make them investable again. No more capital injections! This move only deters private investors from investing in equity. The higher the purchase price of these assets the higher the relief on the balance sheet of the banks. This would without a doubt improve overall economic conditions at a faster rate than any other solution and also affords the government the opportunity of this plan to cost taxpayers very little or possibly nothing. First, all loans should be returned back to the government which so far has amounted to 350bn. Next step would be for the “bad bank” formation and transferring all troubled assets here. An extra step here could be the banks that transfer assets are also forced to invest in the bad bank and in essence recoup a percentage of the losses but not to profit. A step further would be the government selling a portion of the bad banks to private investors sometime down the road.
    If it was my decision I would choose to do nothing and let the game play out the way it should. Many banks would fail, lending would only get tighter and a global recession would still last shorter than nationalizing. Once all the failing players are held accountable and become extinct only healthy banks are left with real balance sheets and the recovery may begin, lending will loosen and so forth begins the next expansion cycle.

    While this is not a quick fix lets not forget we are already in this mess and the best solution to minimize the effect of these troubled assets to the economy would be to have them removed from the balance sheet. I don’t believe a full recovery is likely in the event of this transfer to the “bad bank,” but unless there can be another accounting method to accrue troubled assets only when they mature it’s a start to the end of this mess and lets not forget the person asking for the loan is just as responsible as the one providing it.thevoice@voicedup.com

    Comment by thevoice@voicedup.com -

  24. here’s another proof of one of the biggest fraud and incompetence ever.

    http://news.bbc.co.uk/1/hi/business/7874434.stm

    Comment by kamal -

  25. Mark- What do you make of this? So much for transparency?
    http://uk.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUKN0535801720090206

    Comment by Ben -

  26. I have an idea that might help the American taxpayers who are hurting the most…It’s posted here: http://our2008thirtydaychallenge.wordpress.com/2009/02/05/my-economic-stimulus-idea/

    Comment by SteveH2008 -

  27. Pingback: My Economic Stimulus Idea « The Father & Son Thirty Day Challenge|2008

  28. Banks are sitting on huge losses, in the trillions. Give them money as part of a stimulus package or deposits…and all they will do is shore up their balance sheet. The current and past government packages are doomed to fail because they do not address the real issues. They are merely given to those who caused the mess in the first place. Getting the banks to lend again is only a repeat of what caused the bubble in the first place. The more money is available to lend, the more people will borrow, the more risks they take and the more assets get inflated. When people learn that money lent doesn t really physically exist and is just a bunch of 0 and 1 in a computer, they will understand that for the system to go back to normal, somebody, somewhere has to lose that fictional amount. Since this amount in question is in the trillions, many people and institutions will lose out. That until you realise that the US gov is now trying to bail out their friends, the causers of the chaos and that the only potential losers are tax-payers.

    Comment by kamal -

  29. Create rewards for putting those savings in lending institutions, and reward the institutions for lending it out looks like a simple idea, yet indeed powerful, I think.

    Warmest regards,
    Ciprian

    Comment by Ciprian Gherghescu -

  30. Mark:

    What about a moratorium on the employer’s contribution of payroll taxes? To me that’s directly targeted to making labor cheaper and could help some. (Certainly not an either/or to your suggestion; just another idea.)

    Comment by JACK -

  31. Actually a brilliant plan in how to fix things using real economic principles. Reading some of the comments however, it looks like a lot of people don’t get it

    For those who do not get it…….
    If you save money, you are putting it in the bank. The banks do not just sit on that money in a vault somewhere. They put it to use by lending it out. This is in the form of car loans, mortgages, business loans ( the best ), etc. That is what the government claims they are trying to do by pumping money into the banks.

    There is only problem with your plan. It is too smart and sound for the government. They want something that looks flashy, like they are really doing something, thus the need for huge price tags. Their way is just not working, and may create a new problem from printing all this cash. It is quick and easy and gets them reelected though, and that is all they seem to care about, political careers.

    Your idea will take time, discipline, and explaining to make sure people get it. That is how you build success, both personal and national.

    What we really need is a new set of people with real insight and leadership to get the country going. I think it is high time we look past both Republicans and Democrats and start over with a new party, and new ideas ( or actually a commitment to the old ideas that made us great in the past ). People like yourself are best fit to either be the ones who do it, or provide support for the ones who will.
    .

    Comment by federalistblogs -

  32. If everybody is putting their money into savings, how is that going
    to spur the economy? Nobody will be spending money on Cars, TVs, Home
    Improvments, etc. Instead, you will be loaning money out to people who
    can’t and dont repay. Isn’t that how we got here in the first place?

    Comment by Jaime -

  33. “that lend out 100pct of those funds”…what about reserves?
    I like the idea of not taxing interest income. Anything that is taxed
    delivers less of the desired effect. One exception — Cigarette
    taxes.

    Comment by ahairgrove -

  34. Aren’t we trying to get people to spend more money? My idea is to send out “gift cards” instead of checks. They should have expiration dates and cannot be spent in increments under $100.00.

    Comment by Mike Radigan -

  35. MC,

    Can we get President Obama to appoint you Czar of Common sense?
    With all the input and ideas POTUS is listening to, I’d like to think some of your
    thoughts might “trickle up” to the executive branch.

    Keep up the good work.

    JH

    Comment by JH -

  36. I think anything that changes to public’s perception of a ‘savings account’ would be a good thing. And if folks shifting their money into a savings account at their local banking institution helps the economy, that’s even more of an added incentive that the average joe would get behind. Great idea MC!

    Comment by JASE -

  37. Actually, deposits aren’t used as funds to lend, they are part of an institution’s capital base.
    That base is used to support loan losses and is usually around 8% or so of total loans, I believe.
    Therefore, increased savings can be leveraged 12 to 1 – even better.

    Comment by TB -

  38. Mark, not a bad idea with no up front money.
    One thing that can be done with the stimulus money would be to pay off
    individual credit card debt. This would do 2 things,
    free up money for consumer spending (after the payoff then reduce the
    amount of credit they would have on the new card)
    With the payoff to the banks, this will free up more credit that the
    bank can now lend. Plus we get the money to individuals and business
    with the same dollar

    Comment by Schubie -

  39. savings? i have gold that i bought with my credit cards before my foreclosures. i am going to have a heck of a time declaring bankruptcy. if you watch zietgeist you will see that capitalism does not work. If you are broke and umemplyed, you see that capitalism doesnt work. Democracy is another word for lies and more lawmakers. Lawmakers take all the money that people have. Democracy is a touted and ‘covented’ idea that only crowds more ‘cows’ into the pen, just to be slaughtered. what a screwed up system we ALL HAVE in the world. The earth is so small now that i cant grow my own crops, raise my own chickens, be the father of my family, and mind my own fing business.

    Comment by asdf -

  40. well, I think I agree with some of the comments especially regarding addressing depositors concern. I also found a website http://www.recessioninfocenter.com which has a lot of basic information for consumers.

    Comment by amy -

  41. what do ya’ll think about the debt stimulus package obama suggests.
    should we spend another 500 billion, or pay off some of the debt we
    already have,
    or what do ya’ll think about pelosi flying around in her jet
    being fueled by your tax dollars. shouldn’t she have to fly
    coach like everyone else in the government.
    or how about obomba trying to pay acorn 5 billion for getting him
    n the presidency when they are being sued for paying people to vote
    for obomba
    or how about obomba’s middle name being hussein, like saddam hussein
    who killed people who didn’t vote for him (my sister’s friend’s dad
    being one of the many who were killed)
    or what do you think about all of obomba’s advisors not having paid
    their taxes
    that shouldn’t b a problem seeing he wants to raise our taxes
    GOVERNMENT IS WAY TOOOOO BIG. AND VERY INEFFICIENT. if they were a
    business they would be in debt, wait they are a buisiness and they
    are in debt
    there are too many laws, there should be fewer laws
    THE US GOVT SUCKS, THEY ARE TO FREE AMERICA, BUT THEY ENSLAVE
    AMERICANS THROUGH DUMB LITTLE LAWS, GUN CONTROL, WHAT A JOKE,
    TAKE MY GUN AWAY WHY, SO THEY CAN SHOOT ME, HITLER TOOK ALL THE
    JEWS GUNS AWAY BEFORE HE KILLED ALL OF THEM.
    INFOWARS.COM IS A GREAT WEBSITE TO CHECK OUT. SHOWS HOW THE
    GOVERNMENT WANTS TO DECREASE THE POPULATION.

    I SHOULD BE ABLE TO SEND MY BLOG I JUST WROTE TO MY FRIENDS VIA
    EMAIL.

    Comment by SAMUEL LEOS -

  42. The better solution is to force the institutions with toxic assets into receivership. Pay off the depositors and let them put their money into the remaining healthy institutions. Credibility is restored and capital is flowing again. Let the wiped out stockholders and creditors take the tax deductions on their losses.

    Comment by SJ -

  43. Sorry Mark I it is not my intention to continue ranting on your page. However, I would like to add that I believe we are in a perfect storm. The world has pretty much came to a stop and the US banking system is a small stick in the fire. The world has overextended itself, and we are currently and will continue paying the consequences for years to come. As for the US a majority of individuals do not even have money to put in bank c.d.s/savings. Savings have severely been damaged over the last few years. 4 dollar gas, 5 dollar milk, high unemployment, ridiculous house payments, etc… The only thing we can do at this time is sit back, let nature run its course, and hope that we are not in the way!!!

    Comment by N8 -

  44. Hey Mark, Question, How do you make the banks ACCOUNTABLE for the deposits to do the right thing. As far as I have heard and seen, they either are not talking about what they do with the bail out money and some have even given the almost equal amount out in bonus’s. Here is a kicker, Citigroup gets 45 million in a bailout and is planning to but a 50 mill jet. No shit , Check it out.http://www.huffingtonpost.com/2009/01/26/citi-jet-purchase-50-mill_n_160807.html First we have to find a way to keep the fox guarding the henhouse honest. Now, if you can come up with an idea that will work for that,its a start and probably your own country. lol Some how some way we have to restore trust in the public so we arent sitting here saving a nest egg waiting for the other shoe to drop.Think on it. Thanks for the thoughts.

    Comment by Frankie from Lawnside -

  45. Also I must laugh. The GOP is not upset that banks got bailouts but will not give loans. (Just bonuses to themselves.)

    Yet they oppose any help to keep blue collar America working.

    Oh and sending millions of unmarked bills on skids to Iraq to hand out indescrimately. Well the same folks who say NO to keeping Blue collar America working said YES to litterally throwing hundreds of millions away to warlords and insurgents!

    I don’t know if you would agree Mark. But maybe the one person I would trust to work on a plan to save the economy is none other than Ralph Nader!

    Yes NADER!

    It seems every waring and every prediction the man made for the last nearly 20 years has come true.

    My bigger concern is the two parties got us in this quick sand. And neither can get us out.

    And why not tax Churches? I mean how many of these jerks have used the tax free rules to just preach political propaganda for the last thirty years?

    Of course the craziest of all ideas would help. Legalize Mariujuna and tax it like 40% with a sales tax. It would be cheaper than the blackmarket. Put organized crime (ie gangs) out of business. And well look at beer and booze sales. Never been better right now.

    I’m sure a few Americans would toke up in these times, and in turn put cash back in Uncle Sam’s pockets.

    And while I’m on that, why not raise booze tax right now. If cheap booze is a big seller, will anyone raise the sales tax on that?

    Good ole Ben said here in PA way back in the day, “Only two things are for sure in life, death, and taxes.”

    The latter is still the better of those two, right?

    Comment by Spike Rogan -

  46. Mark:

    I’m well aware you are talking about business lending. I’ve been
    doing commercial lending for nearly 20 years to companies ranging in
    size from start ups to Fortune 50. I currently focus on middle
    market companies (private, under $100mm in revenues). A lot of these
    companies are getting creamed. They are looking to gross up
    inventory advances and push as hard as they can on A/R advance rates.
    These companies are pressed for cash flows and, if they own real
    estate, may be unable to lever it as the real estate is no longer
    marketable.

    Making an incentive to lend is unnecessary. We have all the incentive
    we need. Profit.

    The problem is, the risks are simply too great right now to make that
    many loans. Creating additional incentives in the form of tax breaks
    is silly.

    Want to help the banks and the economy? Get the TED spread down and
    get brokered CD rates such that we could actually lend at Prime.
    That would make us more profitable and lower costs for companies.
    That would improve their earnings and allow them to pay down debt.

    And that would improve everything.

    Comment by Chuck -

  47. Bottom line is faith has to be restored in the banking system. A tax free 1% c.d. is irrelevant to depositors at this time. Keeping their monies safe and being able to sleep at night is what’s important. I believe the answer to correcting the broken banking system was rolling out an efficiently allocated “bailout plan” with very detailed restrictions months back. Instead they put a carrot in front of the donkeys head for a while and then started PISSING money away. Now there is very little confidence in any plan to help the crippled system. The system has unraveled and the only thing that will heal it is time. Hell banks are terrified to lend to each other, why would any average American put there savings in them? I think what you are presenting could help the system later down the road, but see it doing 0 at this time. Even all the big money is flocking to Treasuries which have a pathetic yield. This shows that even the rich are more concerned about safety instead of return. Thoughts??

    Comment by N8 -

  48. Hi,
    Think you have to look at this mr cuban.

    http://krugman.blogs.nytimes.com/2009/01/30/damnification/

    http://krugman.blogs.nytimes.com/2009/02/03/paradox-of-thrift/

    Comment by Giancarlo Angulo -

  49. Mark,

    I appreciate your sentiment. I’m seeing the worst financial and economic strom of my 25 year career as a CPA (both in industry and large public accountancy practices).

    For the first time in my life, I’m beginning to believe a carpenter friend of mine who believes all of this economy is make-believe and that those holding financial assets risk losing all (including deposits in banks).

    If you think about it, what is real and what is a man-made board game?

    – derivatives (including CMO, CLO and CDS securities).
    – puts and calls.
    – the economy.
    – the stock and bond markets.
    – the dollar.

    I haven’t gone there yet, but I’m actually beginning to believe that the best strategy going forward is “guns and butter” – not spurring federally insured deposits in banks.

    Eugene

    Comment by Eugene Zimorowski -

  50. Mark,
    Sound idea! But instead of all this bailout nonsense and ways to fix numerous problems they should go back to basics and that is approach and focus on the original problem that caused all of this and that every expert said would never spread into the the main street economy and that is foreclosures they have done evrything to all the other problems that were caused from the foreclosure mess. They have operated on the patient and left the cancer in hoping that the rest of the body will now heal the cancer. Now that the market is weakly stable after a trillion in liquid they should go back and focus on the problem before they create another problem like the first time they did not address the foreclosures and then created a market stability problem. Just an idea.

    Comment by David -

  51. I would rather see the government legalize and tax prostitution and marijuana in any state that puts it to the voters and passes the legislation. The taxable income from those two industries would infuse enough money into most economies to solve all of our budget problems and free up more state and federal funds for public support projects like education

    Comment by wood -

  52. Mark,

    I have a question. Do you think that our government may have seen the $150+Billion/month that babyboomers would start withdrawing from the government and realize that unless their retirement packages (portfolios) deflated that the government would bust? Or are these two separate issues?

    Comment by Clayton -

  53. Cuban you are right yet again. I certainly agree with you. Privatizing SS is a huge mistake people need to realize.

    Comment by Mike G -

  54. This is a great idea because it reinforces what the government needs to be doing – cutting down taxes on consumers and businesses – not taxing us more with inflation and printing more money. Another winner Mark. If only politicians had balls that worked.

    Comment by Clayton -

  55. The simplest and most immediate way to help the economy would be to legalize and tax marijuana. It is the United States’, and the worlds, number one cash crop (by an enormous margin) and instead of taxing it we spend over $20 billion a year to “fight” it, which has had zero effect on the use of marijuana. If it were legalized and taxed overnight hundreds of thousands of new jobs would be created, and thousands and thousands of new businesses would spring up.

    Hopefully the Michael Phelps situation is a major stepping stone to public acceptance and legalization.

    Comment by Scott K -

  56. So how will the govt. account for the loss of tax revenue if deposits, etc. are not taxed? Or would you be hoping that the increase in tax revenue due to stimulus effects from the proposal will offset the revenue loss?

    Comment by doug -

  57. All the comment-authors on this post, as well as MC, could stand to
    learn a little about how liquidity is created by our banking system.

    http://en.wikipedia.org/wiki/Fractional_reserve_banking

    Basically, if you have a thousand bucks in your wallet, instead of
    depositing it in the bank and using your ATM / credit card when you
    need to buy something, you are taking thousands of dollars of
    liquidity out of the financial system.

    My proposal to create more liquidity is as follows: grant amnesty to
    criminals who have big piles of cash under their mattress, in their
    home safe, buried in the back yard, or whatever. I’ve seen Blow and
    Scarface and such. These guys have a lot of cash they could deposit
    if it wouldn’t raise eyebrows at the IRS.

    While we’re at it, let’s legalize some of their products so we can
    generate tax revenue from the sale of street drugs. I’m sure
    Philip-Morris would be happy to package and sell marijuana, and many
    levels of government would be glad to tax it just like cigarettes.

    Extreme? Well, yes. But we need to think outside the box. The
    increasing use of ATM and credit cards over the past couple of
    decades contributed immensely to liquidity, because people kept their
    pay in the bank longer. There must be more cash out there to be
    deposited.

    Comment by Jeff -

  58. I’ve been using an online bank for savings the last six months or so.
    I can get a much better rate online than at my local bank. They have
    dropped the interest paid three times now, the most recent day before
    yesterday. You would think that if increasing deposits would help this
    mess the banks would be paying a better rate of return. Probably the
    only reason I haven’t drawn it all out is I’m less likely to spend it
    as long as its there instead of within easy reach.

    BTW, I think you have a good idea.

    Comment by Jeff -

  59. Mark,

    Its called a TFSA in Canada and it already exists.

    http://www.tfsa.gc.ca/ for the government stuff

    http://www.tdcanadatrust.com/invest/tax_free.jsp – a sample advert

    dave

    Comment by dave -

  60. Mark —

    Add the total of the bank bailout, $700 billion, plus the proposed stimulus spending in the House of Representatives bill, $819 billion. That totals $1.519 trillion.

    There we’re 156.3 million tax filers in 2008.

    That’s $9,718.49 per U.S. taxpayer.

    Why not just give each American a $9700 debit card instead of the bailout if they really want to stimulate the economy? Or even a fraction of that? Think how much the viable banks will be recapitalized.

    This money is going to be badly allocated to a bunch of congressional pet projects and anything going to long term infrastructure will take a years to be absorbed by the economy.

    PS: Its really annoying typing comments on your blog with Google Chrome.

    Comment by Casey -

  61. Three words:

    Velocity of Money.

    Speeding this up is the only way to ensure growth, and its not going to speed up no matter how much the banks lend.

    Comment by JP -

  62. “If you remove mark to market, you remove any confidence in bank balance sheets. ”

    The OTC derivatives (CDS’s, etc.) were never in an open mark-to-market to begin with. That’s the root of the confidence issue. ALL of the big players have Billions parked in these, they should be forced to put mark them on a public exchange, then we’d instantly know what they’re true value is…which is basically crap. They’ll all be instantly insolvent, the FDIC can step in and insure deposits, private shareholders are wiped out, then we’d be back to some real transparency. It doesn’t exist right now for OTC crap, that’s why there is still huge trust problems out there.

    Comment by Chris Varro -

  63. This is such a ridiculous idea, based on so many false premises, that I wouldn’t know where to start the debunking.

    Where are the *new deposits* going to come from? Mattresses?

    And any substantial monies shifted to a tax-incented, higher-rate savings vehicle will just hurt the spread lending (i.e. deposit base) of already-ravaged banks.

    This idea is harebrained – to put it mildly.

    Comment by CaptiousNut -

  64. Mark, The spirit behind your idea is great, but how do you ensure that this doesn’t create another credit bubble? Have we ever had an example of loose credit that didn’t lead to a bubble or bring poor borrowers into the market? And how can businesses fail and quit when they are leveraged? As a small shop myself, I have found that sometimes the best thing I can do is cut my losses and move on to something more lucrative. If you borrow $20m to build a factory, you can’t always be nimble when the bank is your business partner.

    Comment by BoscoH -

  65. If you want more money deposited in banks, shouldn’t the FED raise interest rates? It encourages people to put money in banks which will do more to capitilize the banks than lending tax money with little accountability and no strings attached.

    From MC> if you make it tax free, it is effectively the same as raising rates for anyone who pays income tax.

    Comment by Derek -

  66. Another good idea would be to eliminate the corporate income tax, cut the capital gains tax, or privatize Social Security. None of this Keynesian nonsense.

    From MC> 1st, privatizing social security would be a disaster of epic proportions. The annual revenue from corporate income tax to the gov is $340 Billion dollars. The amount of money contributed to SSN by companies and individuals is about 900Billion a year. So the toss up is what puts money into the economy faster, the government spending, or letting individuals and companies keep their Social Security Money. (debt is debt for the US Treasury, so the 900 is owed one way or the other).

    Comment by Vake -

  67. You have to consider the reason why savings are up. People are trying to build up cash reserves. With unemployment on the rise and your job potentially at risk, do you want to lend your savings to struggling homeowners? No. You want cash readily available. I realize this would turn on the lending spigot that we desperately need, however, consumers will be cautious with their money.

    Comment by Michael -

  68. Hi Mark,
    What do you think of Steve Forbes contention that a huge amount of the
    credit crunch is actually being caused by mark to market accounting? His
    position is that loan to capital ratios are artificially deflated because
    of fictional losses in a depressed market, and that changing those rules
    would account for the last $500B in losses that haven’t been written off
    by US banks to date. It seems highly likely that will loosen credit, but
    will it also leave the banking system in an unsupported unstable position?
    I’d love to hear your opinion on the topic.

    From MC> He is right, but also wrong. He is right because banks having to mark down assets now have a smaller asset base. Which means they cant lend unless they add more capital (hence my idea to increase deposits). He is wrong because if you change the mark to market rules, no one will trust the bank balance sheets, and as a result, no one will lend them money or buy securitizations of the loans they do make. Because they dont trust them. One of the reasons things went to hell is that lenders stopped trusting each other. So the gov had to step in and start lending capital. If you remove mark to market, you remove any confidence in bank balance sheets. To me, thats far far worse and will create far more problems

    Comment by Daryll Strauss -

  69. Banks are required to hold a certain amount in reserve, rather than lend it out 100%. This is done for a good reason! There will be some percentage of credit that will default, and the amount in ‘reserve’ is meant to cover this. This is how the large financial institutions got in trouble in the 1st place, they were massively over-leveraged on their capital positions (because Congress loosened those restrictions back when Paulson was working for the street instead of Treas. Sect., So when high risk loans (subprime, etc.) started to default, the whole thing started to tip over. Most major financial institutions would be instantly bankrupt if they were forced to mark-to-market all of the junk they are hiding off balance sheet.

    From MC> No question. Its why the bailout money is considered Tier 1 Capital. Because its Preferred Stock rather than deposits. But that doesnt change the principal that if you increase the amount of deposits held by lenders, and you incent them to lend that money, you will deliver more capital into the system. Im certainly not saying lever up. But if the amount of deposits increases 3pct on 7Trillion, any percentage of that is going to help. So pick the ratio and it helps. On top of that, its a whole lot cheaper than paying 10pct on bailout money at almost any ratio

    Comment by Chris Varro -

  70. Mark,

    That may be the simplest yet most genius idea I have heard yet throughout this entire mess.

    Comment by BillFitz -

  71. I work for a bank. We have a lot of opportunities for loans but are
    passing on making the loans because the credit quality of borrowers
    is very poor right now. Do you really want to give me a tax
    incentive to make risky loans? Aren’t risky loans made because of
    wacky incentives the reason we have a credit crunch?

    Not a great idea. Banks will make more loans when companies start
    making more money.

    From MC> I never said make bad loans. There are plenty of credit worthy businesses that cant get capital. This isnt about refinancing mortgages. its about the business side of the equation

    Comment by Chuck -

  72. Great idea MC! That incentive would surely motivate me to move my matress savings into a leanding institution, but then what would I use for a pillow?

    Comment by Craigermike -

  73. Summers and Geithner need to take a back seat to you, Cubes!

    Comment by Nathan -

Comments are closed.