Torricelli on the economy, the stimulus package, and the nationalization of Citi Bank

The economic crisis is deepening. The declining rate of employment, mortgage payments,international trade and GNPis accelerating.

The current danger is that the Obama Administration will interpret these facts as evidence of a recession that is simply deeper in scale than previous down turns. It isn’t deeper, it’s different. You can almost feel the structure of our economy coming unglued.

Simply pouring billions into conventional economic vehicles will do nothing except financiallyrestrict other more important options. If ever there was a time to break conventional molds, this is it. The Obama Administration needs to forecast evolving events and begin implementing measures for the crisis asthey’re likely to be perceived in six months. Nobody this summer is going to believe that educational assistance and a modest road building program are a solution. We shouldn’t fool ourselves now either.

Here are a few things that are aggressive now but likely to be standard international procedure by September:

First, immediately nationalize Citi Bank. The federal government is already a principal owner of the equity. Recapitalize the bank, appoint executives and reopen for business. If other private banks want to sit on their TARP money and not lend, they’ll lose market share to the new “Bank Of the United States”.

Second, the federal government should purchase 25% of the equity in every foreclosed property in the country. Home owners could reduce their private mortgages to affordable levels. Participating banks would be required to rewrite mortgages at reduced fixed rates. The government would recover the money when the homes are eventually sold, refinanced, or inherited.

Third, the federal government should assume all health care and retirement accounts of the domestic automakers. This is much like the model used for the railroads. It’s a long term obligation but an immediate relief of financial pressure for the Big Three.

Fourth, all interest on savings in FDIC Insured Banks and dividends on equitiesshould immediately be made tax free. Families must be encouraged to create personal safety nets and the nation’s savings rate must be increased to accommodate the massive government spending.

Fifth, the Stimulus Legislation that the President just signed needs to be adjusted. The priority placed on projects being constructed this year is unworkable. This economic dislocation will continue for years. The stimulus money needs to be re-targeted at long range infrastructure projects like high speed rail, schools, water filtration and port development. Prioritizing immediate projects will squanderthe funds with small projects and provide no residual value or longer term employment

Sixth, capital gains taxes for all equities, securities and real estate purchased or sold in the next two years should be eliminated. Every available dollar of capital that’s waiting on the economic sidelines should be moved into the markets.

Seventh,a Student Corp of workers to clean parks, paint public housing, tutor children and hundreds of other tasks should be formed for this summer. Students are the nation’s best consumers and they spend everything immediately. They can do needed work while spending money and securing an opportunity to keep themselves in school. Young people not attending school should be included. A summer work program will be vital in lowering tensions during some difficult months ahead.

Eight, Unemployment needs to be attacked from every direction. Another means of reducing unemployment rolls is student enrollment. College tuition and vocational training should be made immediately and fully tax deductible. Deductions should be made available to carry forward against future lifetime income. The resulting movement of even a few hundred thousand young workers into educational pursuits will ease pressure on older workers being forced out of the workplace.

Nine, the declining price of oil is undermining domestic exploration and production from marginal wells. Uncertainty about the future price of oil will destroy investment in renewable forms of energy and research. The federal government should immediately establish a floor price for oil sold in the United States. The US Government and not OPEC or a manipulated oil market should set the price. A floating tax that produces revenue when the market price falls below the target should be dedicated to funding alternative energy research and building the new infrastructure for ourfuture energy sources. The first priority should be building immediate facilities for recharging electric automobiles at service stations across the country. A second priority is constructingthe new energy efficient power grid of the future.

Ten, there are up to ten million Americans who don’t belong in home ownership. They can’t afford it and housing alternatives should be made available. The Federal Government should assemble large tracts of land along mass transit corridors and provide that land to developers of rental multifamily housing. The availability of affordable land should be supplemented by tax credits for those developers renting housing within established rent limits.

This isn’t a total list but it is an introduction to the realization that this situation is different than anything that we’ve faced in a long time. If we’re to overcome this challenge we have to do better than respond with more of the same. All of our futures are on the line.

Torricelli on the economy, the stimulus package, and the nationalization of Citi Bank