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The economic house of the United States is ready to collapse upon itself, leaving us exposed and defenseless against the next Great Depression. Bureaucratic handymen with a staple gun and a trillion-dollar roll can't paper over holes in bank balance sheets or fill in the others created by plunging consumer spending.
It won't work.
What is needed – and what would arrest the slide in U.S. housing prices – is a renewed general confidence in protective regulations, and tax incentives for investors to buy troubled assets and to make equity investments in banks.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.
Very well thought out proposal. It is aimed at quickly achieving asset value discovery, future transparency in markets and a new effective regulatory structure. I can imagine that some purists will object to interference with free markets and expanding government; I would argue that your proposals are aimed at reducing market manipulation and establishing needed government involvement.
Forget the conjecture…the banks must help those in desperate, true need of financial help. Those laid off that want to keep their homes. Not those working who just want a cut in their mortage.
Billions of dollars have put forth to help this ugly situation…put this money where it will truly help. Cover the monthly mortgage payments until the laid off person gets called back to work or finds another job…or let the laid off person refinance his/her home to an affordable monthly mortgage rate.
Get this to Obama, Geithner, and the rest of the Cabinet, so we can get back to consumer confidence, and prosperity.
Your proposals, in the long run, would damage an economy based on individual rights, where people earn money taking risks, that has been the base structured by the Founding Fathers. The Founding Fathers also had in mind the mechanics of Chapter ll: Banckrpucies. You would eventually arrive to a system very similar to the one used in Europe, where the American dream is unobtainable and people migrate to the US or underdeveloped countries where people have better chances and opportunities for them and their families. Your proposals would bring along more government intervention and a passive economy of burocrats that… Read more »
I agree 100% with the plan presented here today, but I would take it a step further and integrate this final piece into the framework. I’m all in favor of using Government’s power to intervene in times of great turmoil to bring about much needed economic stability, but Secretary Geithner’s plan as it stands today, is nothing but a desperate scheme to save certain bondholders from insolvency. He and the President are simply throwing good money after bad. The only real solution is to restructure crippling debt and until we come to that conclusion then we may as well do… Read more »
Look, this is a great plan, thoughtful and carefully worked out, just as I would expect from Shah Gilani–but it's a pity if only us schmoes who read this blog (no offense to any of us schmoes or to the bloggers!) will ever see it. Hopefully Mr. Gilani or his associates know someone, or know someone who knows someone else, who can actually take a list of suggestions like this and put them into play where the decisions are actually made!
Would it be a solution if the U.S Gov. was to issue, say 10 year Zero Coupon Bonds in exchange for the toxic assets of the banks. The banks would have to hold Bonds until maturity and would of course not be tradable and thus would not have to be "marked to market". The toxic assets would be put into a " Bad Bank" and could be worked out during the 10 yr. period of the Zero Coupon Bonds. The gov. would not have to pay out any funds until the Zero Coupon Bonds matured and the banks would accrue… Read more »
I agree as to the basics ; but what should have been done from the outset & still should be is to take all the existing loans I don't care if it is for a $100 K or $1 mil convert them to a fixed rate of 4% , keep the rate this low for about 2 years till the market sorts it self out the let it float; this would most likely stop all if not most of the foreclosures , 2nd any company that out sources , ships their jobs/ production over seas should be taxed at a… Read more »
Hi Shah, Could the U.S Gov. issue say 10 year Zero Coupon Bonds for the Toxic assets in the banks which would be put into a "Bad Bank". The banks would not be able to trade the bonds, so the would not have to "mark to market" but would accrue the income in the normal way. The government would not actually have to part with any tax payers cash and would have a 10 year period to work out the toxic assets in the Bad Banks. Hopefully during the ensuing 10 years the economy will recover and lead to some… Read more »
Why should the government adopt regulatory measures to "firm up" house prices? If house prices fall to affordable levels in line with the long-term ratio of price to income, people will be able to buy houses. They will be able to put aside a regular sum from their income in what is called a "savings account" (they still have this in many other countries). This builds into a sizeable deposit, then the buyer makes his/her purchase and the regular sum becomes the monthly mortgage payment. No need for foreclosure.
Efficient regulation is to be applauded. However it does not address the primary problem of an industry of paper shufflers who, in the main, have a negative contribution to the world economy. What % of activity is directed at primary versus secondary investments? The investing of funds "in funds" sets up the market for a misallocation of capital and develops a casino mentality especially when short term returns are the mantra. Direct investment at real R&D, production and services and maybe the economy can revive. "Gamblers ruin" maybe a concept worth understanding.
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