Baby Steps Won't Cure the Economy

Hank Paulson tried giving money to bankers. Tim Geithner wants to play "let's pretend" and make believe that worthless bank assets have value. Paulson failed and Geithner will fail because both Treasury secretaries have been just diddling with the edges of an immense economic black hole.

When the leveraged investments bubble burst trillions of dollars disappeared in a puff of red smoke. Leveraged investing was a game of musical chairs where the money went around in circles so everyone could pretend to own it. Well, the music has stopped.

The hundreds of billions of dollars that have been poured into banks have had little impact because most of it is going into patching a few of the smaller holes in the banks balance sheets and very little is left to actually affect the economy. What is needed is some tough realizations.

One, most of the major investment banks are worthless hulks. They may be "too big to fail" but they have already failed and propping up their rotting corpses in the Big Kahuna chairs is simply poisoning the air around the smaller, more prudent banks that still have hopes of surviving. Businesses need active, living, banks to make loans.

Throwing out the dead bodies means that the Federal Reserve Banks are, for the next few years, going to have the cut out the middlemen and make loans directly to major businesses to facilitate economic activity. The Federal treasury is going to have to stop gifting money into Bank of America and her ilk while hoping that this will indirectly stimulate the economy. Instead, it has to start using its financial muscle to directly invest in America by loaning money to businesses that want to build things, to do things.