No, I don't believe Obama's "Economic Stimulus" policy is a good one. Basically, what he wants to do is continue providing bailout money in the form of capital funds to the banks. So far this hasn't worked, banks aren't lending back these funds and there's still a capital problem in the financial markets. Simply put this approach hasn't worked. Obama on this front wants to do more of the same. They're doing the same thing over and over again and expecting different results!

Obama intends to stimulate the economy by way of a huge $825 billion government works program that will include money that will be used to upgrade our highway system, install new broadband networks and develop a smart "green" energy grid, among other things. Now don't get me wrong, these are all important priorities and I applaud Obama for stepping up to the plate on this. Our infrastructure does need to be upgraded and the government can surely facilitate new business activity by fixing our roads or upgrading our technological infrastructure.

Many of these proposals have a positive financial and social utility, but this alone WILL NOT solve the underlying problem in the financial markets, nor will it create massive new employment opportunities for the out-of-work. Japan's experience with stimulus programs during their economic slump during the 1990's and even our experience during the Great Depression should prove instructive here. In neither situation did massive government programs move either economy out of depression.

So far what Obama is doing will not solve the underlying problem. This is a crisis of confidence in the banking system that needs to be resolved. Since this item asks us to give a better solution to the banking crisis, I will give it a try here. Basically, I do some de-regulation of the system, primarily as a means to re-start capital formation, but I would also increase government oversight of some aspects of the financial sector, specifically in the area of derivitatives and futures markets.

First, I would reduce the banks capitalization requirements from 6% of Tier 1 Capital (the banks core capital in relation to total assets) to 4%. That would immediately reduce the bank's need to raise capital, thus reducing the risk of further bank failures. It would also reduce the need for banks to ask the government for more money. Secondly, all securitized loans would be directly guaranteed by a private entity, further reducing risk within the system. Note that I don't believe that the government should guarantee all the loans, instead it should be guaranteed by a private fund that will take money from major financial players for the purchase of these loans. Any monetary shortfalls can be solved by direct government injections of funds. The government did something similar during the Saving and Loan Crisis in the 1980's.

Securitization is a process where a certain number of loans are pooled together and sold to various investors at a given price. Each loan is divided into various tiers of risk from high to low. This was the problem that led up to the mortgage crisis earlier this year. A lot of high risk loans, especially in the mortgage markets (things like adjustable rate mortgages) were given out with few preconditions in recent years. When interest rates re-adjusted upwards, people were not able to pay back their loans, thus precipitating the crisis. I believe that guaranteeing these loans directly through government funds would be a far more efficient way of using money than simply giving it away to the banks without preconditions. Right there, you're going to the heart of the matter.

Thirdly, I would temporarily suspend the Mark-To-Market Accounting rules which were instituted in 2007. One former FDIC chairman put much of the blame for this problem on the regulatory agencies and their rules governing financial standards (http://www.cnbc.com/id/27100454). I happen to think that it didn't cause the problem, but it's a hindrance to solving it. The government has amended these rules, but without much effect. Basically Mark-To-Market is a process where assets are recorded in the books according to their current value, as opposed to the price which was originally paid for it. Much of this debate is academic. The problem is that these rules are forcing companies to re-value their assets at an artificially low level, without cause to do so. It has been estimated that the financial sector has lost over $5 trillion unnecessarily due to asset re-valuations stemming from these rules. Suspending them would give the financial system much needed confidence. Upward re-valuation of financial assets would provide the financial system with much needed liquidity and will re-start lending.

I would hold the line on taxes. No increases of capital gains taxes or income taxes. I generally believe that you don't raise taxes during a recession, as the goal is to re-start business activity. In terms of new regulations, I would re-regulate the futures and dervitatives markets and I would institute a Tobin Tax on trading. It would be a very small tax, a 1/2 penny to the dollar. It might sound like a small amount, but when you're talking about multi-trillion dollar markets, the amount of income that could be generated for the government will be significant, perhaps enough to close funding shortfalls while investing the money back into public works projects. I would also consider monetary policy reform, but that's further down the road.

So that would be my road map for getting us out of the financial crisis. I hope that Obama reads this, although I doubt he uses Rateitall!!

bailout=President Bush acting like a democrat.....go figure

Obama voted in favor of the package but was not a significant contributor to its drafting, an odd omission on the part of the majority party, to leave out its titular leader for such an enormously important bill.  I suspect he did not want his fingerprints on it, though the press would have quickly wiped them off it anyway.  He should weigh in on this issue, you should know what President Obama would do in his first true leadership role.