Averting the Next Looming Disaster: Busting of Dollar

September 20, 2008

Sankarshan Acharya
Pro-Prosperity.Com and Citizens for Development

September 20, 2008

Written to U.S. Senators

Sub:    Averting the Next Looming Disaster: Busting of Dollar

Dear Senator ,

The carte blanche on Iraq war was used to draw a trillion dollars from taxpayers for defense contractors and other special interests.  The usurpers handed the taxpayers with enormously expensive gasoline and food bills.  They could not conquer Iraq.  Neither could they defeat al Qaeda.  The usurped funds were deployed in unbridled hedge funds to earn usurious returns, even by ruining the pension funds and the formidable American financial system.[1]  This has bared a powerful nation as weak in all fronts.

Another blank check to fix the ruined financial system will flood the system with money that can bust the dollar.  The current crisis is serious.  But the proposed remedy, if not executed with necessary long-term strategies, can beget uncontrollable disaster for taxpayers.  I have written about these impending financial crises brewing under the veneer of the hooted economic growth to the U.S. Congress and President since 2003.[2]  The current crisis should be handled only optimally in the best long run interest of taxpayers by aiming to avert the next looming disaster (bursting of dollar):

1.      No employee including CEO in any organization seeking and being granted a bailout should receive more than ten times the average salary within the organization.[3] 

2.      No institution federally supported (explicitly or implicitly) can pay any employee including the CEO more than ten times the average salary of all employees. 

3.      Every financial institution must always hold capital of at least 8% of consolidated assets, based on marked-to-market accounting and reported real-time online to the Federal Reserve Board.

4.      Hedge funds and investment banks cannot borrow more than 100% of their capitals from insured banks.  They are margin traders like all other individual traders and so must follow the same rules as individuals.  Currently, CEOs of commercial banks, who also are principals of most hedge funds, can use their power to let their hedge funds borrow 2000-3000% of their capitals in a dangerous game to earn usurious returns even by upstaging the capital markets.  Their goal of earning usurious private returns has subverted taxpayer interests in pension funds, commodity prices and stability of the financial system.  The current unbridled system must be governed with fair policies before taxpayers issue another colossal blank check (labeled as $700 billion now) to the same operators who have wrecked havoc on everyone. 

5.      The U.S. Congress must have its own body to operate the reverse auction process being proposed by the Treasury to buy the toxic assets of ailing financials.  Like President Reagan used to say: trust but verify.

6.      After buying the toxic assets at the lowest ask, offered by an ailing financial, the Treasury and Congressional body together must seek best bids from healthy financials to buy the ailing institution immediately to obviate future burden on taxpayers.

7.      Offer the current Fannie Mae mortgage rates of interest to every individual mortgage holder facing foreclosure but can and is willing to hold the home with the better terms. The principal amount on such mortgages should be discounted by the same percent as the rate at which Treasury will buy the mortgage debts from banks.  If the Treasury pays, for example, 0.70 to buy $1 face value of mortgage debt from an ailing bank, then the principal of a mortgage holder facing foreclosureshould likewise be reduced to 70% of the outstanding amount.        

With best regards,

Sankarshan Acharya

[1] http://www.pro-prosperity.com/Research/Sub-Optimality%20of%20Short%20Selling.pdf

[2] http://www.pro-prosperity.com/Global%20Economy%20Chatterbox/Warning-USCongress-In-2003-On-Home-Mortgage-Debacle.html