What will fix the economy is to solve the root of the problem, not throw money at the symptoms as Congress, Paulson, and Bernanke have been doing. This crisis is imminently solvable, not the opaque, insurmountable problem they make it out to be.

The roots of the problem are:

1. No trust in the markets. All banks and financial institutions suspect each other of hiding insolvency, and are afraid to loan in the overnight lending market or longer term b/c who wants to lend money to an institution that could within a few days spiral into failure, as Bear Stearns and Lehman did?

2. Many banks and investment banks are insolvent, they're just hiding it off-balance sheet on Level 3 or in SIVs, or some other obsfucation. They've leveraged up, or borrowed money, using these hidden, now-distressed or nonperforming 'assets' as collateral. Now that collateral is going bad, they are trying to hide it using off-balance and/or mark-to-model accounting.

3. Excessive leverage ratios of 20:1, 30:1, 40:1, even 60:1 in the case of Fannie Mae. Leverage amplifies your returns in good times, but amplifies your losses when your trades and investments go against you.

4. Housing prices are reverting to their historical mean of no more than 3.5x to 4x salary levels, bringing down mortgage securities based on them that were created with the assumption that housing prices, even those in a historically unprecedented bubble, never fall.

Several sound, informed solutions have been proposed: The Genesis Plan, Plan B by Luigi Zingales of Chicago GSB, Tavakoli Structured Finance's alterntive plan, Juan Enriquez's plan of Harvard GSB, and Nouriel Roubini's plan. In a nutshell, they all include variations on the following:

1. Require 100% balance sheet transparency on all publicly traded companies. Off-balance-sheet shenanigans like Level 3 and SIVs were supposed to have been eliminated after Enron, instead they infected the entire financial system. Without full, perfect transparency trust can never completely return to the financial markets.

2. #1 will expose many companies as distressed or insolvent, some of which are necessary for a working financial system and some of which are not. The solution to this is forced restructuring that puts first losses on stock and bondholders, as is supposed to happen in capitalism, not a taxpayer bailout that shifts the risks and losses to the Federal balance sheet and currency. A capital structure cramdown that wipes out current equity and converts bonds to new equity is usual way of accomplishing this. Stockholders lose 100%, and bondholders take a partial loss but are left with equity in a still-functioning, productive company with a clean, debt-free balance sheet, able to return to making money unimpaired. If further capital infusion is still needed after the restructuring, the Fed and Treasury can triage at much less cost and risk. This step is covered in detail by all three plans, and by dr. Enriquez's plan as well.

3. Require all derivatives to be traded on a margin-requirement-enforcing exchange. No more OTC contracts that can stealthily balloon into a $66T tangle of 'weapons of financial mass destruction'.

4. Reinstate the historically safe 12:1 leverage cap requirement (that incidentally Hank Paulson, lobbying in 2004, got repealed).

5. Restructure and workout bad mortgages so as to allow an orderly housing price regression to the historical mean of no more than 3.5x to 4x salary levels, while mitigating as much as possible the damage to currently outstanding securitized mortgage instruments. Zingales covers this in detail.

Links to the plans:

http://www.denninger.net/letters/genesis.pdf

http://faculty.chicagogsb.edu/luigi.zingales/research/PSpapers/plan_b.pdf

http://www.tavakolistructuredfinance.com/TSF8.html

http://www.tavakolistructuredfinance.com/BNN5.html

http://poptech.wiki.zoho.com/

http://www.rgemonitor.com/707

The newly established Democratic majority with Pres. Elect Obama have been announcing plans in an attempt to stabilize the economy. The biggest of these plans have been the recent bailouts, which have enjoyed bipartisan support, but also created a lot of controversy.

My argument is that the best way to fix the economy is to cut taxes, especially Capital Gains taxes, and to reaffirm the bush tax cuts, something Obama has recently begun considering. By putting more money into people's pockets and reducing penalties against those who invest or earn too much income, spending will increase, helping businesses create new jobs.

The worst things we can do are to increase Capital Gains taxes, and raise taxes for those making more money (or for anyone really). This will mean we need to drastically reduce wasteful spending in Washington to help gain control of the deficit we've already gained.

We also need to pass new legislation against predatory lending, and get the government out of the markets (remember it was Fannie Mae and Freddie Mac which started this mess).

Any conversation about "fixing" the economy is moot without addressing our national currency. Until we have one that is not founded on debt and usury, we'll continue to have miserable economic problems.

I would also suggest a look at the Fair Tax. It shifts the entire tax burden from Production to Consumption, and essentially makes America the next global mecca for business & manufacturing outsourcing. Our economy desperately needs to return to a basis of real wealth creation (taking raw materials, innovation, labor, and capital and turning them into products worth more than the sum of their inputs) instead of paper wealth creation or transfer, and the Fair Tax is the best way of doing that I've yet seen. If you haven't read their latest book, please do so. There are lots of misconceptions and misunderstandings about it, and even the Fair Tax creators made some inaccurate assertions initially that they have now corrected in the latest book, Fair Tax: The Truth: Answering the Critics.

so if I say shoot everyone earning over $300,000 per year and let God sort them out

would this be bad?

Insurance companies are fairly atrocious, but the government is going to do exactly the same thing if they take over. At least right now if the insurance company does anything too rotten you can go to the government for intervention. When the government runs it, where do you go? And in any case, I don't see how this would help us economically. If you want to see the economic effects of universal health care, look at California, which has been devastated by government spending.

I agree with the above about that comment about shooting people being scary, so I too am going to hope that you're kidding.

For all the complaining about how your boss makes so much and has so much freedom, I wonder why you don't go off on your own and be your own boss, start your own idea and business. I know, I know, it's not that easy... but if it's so hard maybe that's why the incentives are so good :) Our economy rewards ingenuity, or at least it should, which gets back to my argument not to penalize those that make more and/or take the risks, because if you do they stop taking them.

One last comment in my longwindedness :) About lowering taxes for those who need it. This is my problem with that: So you lower taxes for the lower and maybe middle class (in Obama's plan, many of these people getting "tax cuts" don't pay taxes to begin with, but that's beside the point for now), so you lower their taxes and they get, say $1000 from the govt. In the meantime all of this results in a percentage raise for the upper and upper middle class, who own the businesses. So they do one of three things: they raise the prices on everything they sell so that the consumer still pays for it; they stop earning so much so that they fall under the income bracket; or three, in order to maintain what they have with the added expense, they cut spending and layoff a few employees. All three are disasterous economically.

So here's the questions to the working class (which I'm a part of). Would you rather have $1000 govt tax break, or a job?

While I agree that the first step is to increase taxes for the wealthy and lower them for the middle and lower class, I believe we must do more because this alone wil not fix the economy.

One idea is to give economic stimulous checks but this is a quick fix not a lasting one. It will help the economy long enough to empliment a more permanant fix.

Another idea is for welfare reform, only we must direct it more tward undocumented individuals. While people who are document and speak english have a spacific amount of time to find a job and get off welfare, those who are not documented do not have to do anything. The reason is because they are undocumented, and also because they do not speak english in order to get a job. Therefore, the logical thing to do would be make english the national official language of this country. When an undocumented person applys for state assistance they should be taught to speak english so they can find a job. Those who have no need to find a job are not helping our economy, they are sitting on welfare for 10 to 15 years without contributing to our economy and since about 50% of people on welfare are undocumented we lose hundreds of billions of dollars throughout the nation every year.

Another idea is to amend the appeal process for people on death row. Having a man sit on death row for 40 years because he refuses to file his three appeals nessisary to put him to death. Therefore, the country is paying not only billions to let them live every year, it is crowding the prisons so that other offenders are left on the streets and encourage other people to offend knowing they will not go to prison. I feel that a person on death row should have no more then two years to file an appeal or forfit that appeal and move on to the next. There should be no reason that a person should stay on death row no more then 7 years before being put to death.

This will not only save billions of dollars per year but will provide more room for harsh offenders, ensure public safty, and encourage people to think twice before doing something that will result in someone elses death.

While I agree that the first step is to increase taxes for the wealthy and lower them for the middle and lower class, I believe we must do more because this alone wil not fix the economy.

One idea is to give economic stimulous checks but this is a quick fix not a lasting one. It will help the economy long enough to empliment a more permanant fix.

Another idea is for welfare reform, only we must direct it more tward undocumented individuals. While people who are document and speak english have a spacific amount of time to find a job and get off welfare, those who are not documented do not have to do anything. The reason is because they are undocumented, and also because they do not speak english in order to get a job. Therefore, the logical thing to do would be make english the national official language of this country. When an undocumented person applys for state assistance they should be taught to speak english so they can find a job. Those who have no need to find a job are not helping our economy, they are sitting on welfare for 10 to 15 years without contributing to our economy and since about 50% of people on welfare are undocumented we lose hundreds of billions of dollars throughout the nation every year.

Another idea is to amend the appeal process for people on death row. Having a man sit on death row for 40 years because he refuses to file his three appeals nessisary to put him to death. Therefore, the country is paying not only billions to let them live every year, it is crowding the prisons so that other offenders are left on the streets and encourage other people to offend knowing they will not go to prison. I feel that a person on death row should have no more then two years to file an appeal or forfit that appeal and move on to the next. There should be no reason that a person should stay on death row no more then 7 years before being put to death.

This will not only save billions of dollars per year but will provide more room for harsh offenders, ensure public safty, and encourage people to think twice before doing something that will result in someone elses death.

Give every American citizen a check for $1 million dollars and the economy will drastically improve.

The best ideas for helping the economy revolve around a) ending our current expensive bellicosity and b) national health.

First, military expenditures have reached a crippling level and create a force that jumps to the least worthy whim of the very human and very fallible president. Reducing this hideous carnage will not only save lives, it will save money.

Second, health care is affecting costs for all other businesses. The insurance companies collect huge fees for acting as gatekeepers, and their incentive is in the direction of reducing service and increasing price. Even a bad-to-indifferent government agency could do better!