Cos,

I believe we need something entirely new if the current market fiasco keeps up.

The cause of today's trouble is a completely tightened credit market. Nobody is lending to anybody according to the somebodies.

Central banking policy is out the window as the lowering of prime lending rates has not had a direct effect. This has only allowed for banks to increase their margins by lending at the same criteria and rates while borrowing at a discount from the feds.

Government bailouts have become much too policitical and I cannot see these assisting in the short term.

What is needed is some good old fashioned business sense. I hear of stories out west in Canada where private individuals bought up the mortgages during the great depression as the banks went bust. The families were allowed to live there by the private individual who granted them a secured mortgage in exchange for a mortgage payment and some % of the crops. This was a good alternative to the suits at the bank who did not extend credit and who only saw foreclosure (and a depressed homestead market) as the only option.

Now that was an agratarian environment which cannot be applied directly to modern business today.. or can it?

Warren Buffet just took huge positions in Goldman Sachs and General Electric. Not one to throw his money away, he propelled much needed capital into these companies in return for preferred shares at a return of 10%. If the company goes broke he is the first to get paid after the creditors due to the preferred shares. He also gets a nice return each year.

Think of the house and crop example. An ownership in the property and a percentage of the crops. Is this not what Warren Buffet applied at GE?

But even Warren only has so many billions to invest like this.

What is needed is for the government's to stop throwing money away to the banks who are not helping the situations out there and instead use this money to do the following:

1) Provide investment capital directly to the hands that need it (economy) bypassing the middlemen (banks). If I was to use food aid as an example, it is allowing the UN planes to drop the food off to the people and thus bypassing the thugs who steal the food and sell it to the people at blackmarket prices.

There are a number of ways to do this. The two that come to mind are the CMHC method and the second I will call the Buffet method:

CMHC Method: Set up a business insurance corporation that allows business access to lines of credit according to a set of underwriting guidelines. Let's face it, CMHC in Canada (Fanny Mac in the US) was set up to allow the average person without 25% down to borrow money to buy a house and pay a mortgage. It has essentially kept the middle class going by allowing people access to property without being forced to rent the rest of their lives as those starting out cannot meet the banks excessive lending criteria. Criteria could include past business history, assets,..

Now I know what you are thinking? Don't banks do this today? Obviously not as they are like the farmer unwilling to feed his cattle in fear that he might not have enough left for himself. Banks are so constipated at the moment that they are farting diamonds.

Buffet Method: As of today, announce a 700B bailout package whereby business can access a line of credit in exchange for preferred shares in the company and a return on shares of one or two points above the fed rate. Its called security on a loan and from what I have seen the bailout package was missing this. Think of it like a massive public mutual fund where the tax payer dollars (the 700B) lend money to companies through preferred share purchases while at the same time receiving a return on investment. What a concept! Making money rather than going into debt and just servicing interest.

Now I know what you are thinking? Don't investment funds do this? Obviously not. Or at least not with real money. Fact is that the whole industry was so overleveraged that most of the investments were unpaid for. That is until the collection agency came calling in which case they were forced to sell whatever assets they did have and make good.

Want an explanation for the last month of craziness?

A whole lot of banks were involved in a poker game where everybody was cheating. When the first bank turned over three aces and the second bank turned over two, everybody started to panic and the chips (as the proverb goes) were flying.

Suddenly it was a rush to the chip window before anybody could figure out who was cheating who.

Unfortunately, the banks are not a casino and real people like you and me rely on financial institutions to work, eat, clothe ourselves, and keep from living in a gun-wielding anarchistic society.

The banks have proven they cannot clean this mess up on their own. If the governments get involved it should be under a whole new set of rules, kinda like what Warren re-wrote when he invested in GE last week.

M1.

2)