I have commented on a few occasions that one of the ways we ought help rebuild from the fall-out of the current financial mess it to do what FDR did through massive New Deal type of legislation. We will need to fund large-scale infrastructure development. Further to that thought is the concept that using such a mechanism to rebuild America’s infrastructure with sustainable alternatives and solutions will carry multiple benefits of putting Americans to work, retraining them around green-collar jobs, jump starting American technological investment/advancement, and positioning the US to be a net exporter of sustainable technologies and products, while lowering future operating costs.
Apparently Nouriel Roubini agrees:
Roubini: To do:
1) To reduce the counterparty risk in the money markets a triage between insolvent banks that need to be shut down and a recapitalization of solvent banks is necessary together with massive injections of liquidity in non-banks and the corporate sector;
2) Commercial paper facility was recommended here first and it is a useful first step. Consider expanding to small businesses as well.
3) a generalized temporary blanket guarantee of all deposits is now necessary both in the US and in Europe;
4) amend flawed $700 bn TARP legislation: a) allow for direct government injection of public capital in banks in the form of preferred shared matched by private capital contributions by current shareholders (via suspension of all dividend payments and matching Tier 1 capital provided by private shareholders); b) implement a clear plan to reduce the face value of mortgages for distressed home owners and avoid a tsunami of foreclosures; c) do a rapid and radical triage between solvent banks and insolvent banks that need to be rapidly closed;
5) give a boost to aggregate demand to ensure that an unavoidable two-year recession does not become a decade long stagnation: a) immediately spend in infrastructures and in new green technologies; b) increase unemployment benefits; c) federal block grants should be given to state and local government to boost their infrastructure spending (roads, sewer systems, etc.).
–> $300 bn of public works is more effective and productive than spending $700 bn to buy toxic assets. (http://www.rgemonitor.com/)
Money and Credit Market Stress At Unprecedented Highs: What Needs To Be Done?
Nourial Roubini, RGE Monitor, Oct 9, 2008