My Own $2.5 Trillion Stimulus: $25,000 to Each Taxpayer: Three guys hatched it at Three Guys—it’s better than World War III!

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A trillion here, a trillion there.

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A trillion for TARP, a trillion for TALF.

Throw in what’s in the “stimulus” package and you’re probably at close to $3 trillion.

So why not simply distribute $25,000, tax free, to every U.S. taxpayer? There are 100 million of us, in round figures, so we’re talking about $2.5 trillion, give or take.

This is what two friends and I asked each other over lunch at Three Guys last week. After we got through the usual preliminaries, such as where can one buy hemlock these days, given that our actuarial match-up (two of us are over 70) with our resources leaves us as upside-down as the most strapped Corona del Mar mortgage victim, we started talking about the economy and how to rescue it.

Clearly, these institutional rescue plans are going nowhere. The pricing dichotomy—Uncle Sam either pays too little or too much—seems intractable and the recipients are surely undeserving. Even though there have been two big distress sales of toxic assets—by Merrill Lynch last fall and Legg Mason last week—at around 20 cents on the dollar, which might represent a pricing benchmark, I just don’t think the taxpayer should be put in the business of writing a “make whole” for either pigs or vultures, who in many cases may now be one and the same. That is capitalism’s tragic paradox, unseen by Adam Smith, probably understood by Marx: The people who cause crashes frequently profit from them.

The problem is, everyone’s hanging around looking for a deal from the government that’ll yield a deal that’s better than fair to everyone except the taxpayer, and Geithner and his small and doughty band know it. (The Treasury increasingly reminds me of Fort Zinderneuf in Beau Geste, with dead bodies propped up in the gun ports and Gary Cooper scuttling from post to post, firing at a superior force of Bedouins.) And the “infrastructure” solution, as I see it, is simply open-ended flapdoodle capable of inciting limitless political foolishness and private-sector thievery. Let’s not import Iraq back home.

Institutionally, what should be done immediately is to separate the good assets from the dubious. In the case of the “banks,” hive off depositary operations and wealth management from trading and arbitrage. At AIG (AIG), put a fence around the real insurance operations and let the credit default swap commitments go. Wipe out derivatives contracts that had no real third-party assets at risk (possibly as much as $30 trillion of “naked” puts), that were nothing more or less than bets against the solvency and credit rating of insurers like AIG and Lehman, and let the rest negotiate settlements as best they can.  All the crap can go into what I heard one English financial analyst on WNYC call “a giant international cesspit,” and let the scavengers fight over it like rats in a garbage dump. Isn’t this the kind of market solution propounded by (speaking of rats) the likes of Larry Kudlow?

The more I see what’s going on now, the better I think I grasp what really happened in the Depression. Why, by late 1940, there was so little trading and deal volume on Wall Street that people like my father, a 34-year-old partner at Lehman Brothers, enlisted in the U.S. Navy, figuring that F.D.R. was going to get us into a war with Hitler and he might as well have a commission.

History proved Joe Thomas right in his assessment of his president’s intentions. By then, F.D.R. probably understood that there was only one solution to the nation’s precarious economic condition: jobs, jobs, jobs. And that nothing would provide jobs—in the military, on the home front—more efficaciously than a war. And so it proved. Moreover, when the war was won, Washington grasped that millions of dis-employed  service people and defense workers might represent a brand new social and economic crisis and came up with the G.I. Bill. As opposed to the U.K., which sent its newly de-mobbed Tommies back down the pits and got a Labour government for its pains. I know of no more powerful example of the difference between the way a capitalist democracy is supposed to work and the way it isn’t. I should add my opinion that Ms. Pelosi (surely there can never have been a worse speaker!) and other Capitol Hill idiots would never have devised a G.I. Bill, not in a millennium!

So let’s go back to the “Three Guys” scheme, as history will doubtless christen it. At $2.5 trillion, the money’s about the same as Washington plans to spend. Any way you cut it, relief is going to be funded in the people’s money, so why not let the people decide how to spend it? To some taxpayers, $25,000 will be a lot of money and will be spent on life’s necessities or to ease household financial crises: to pay off debts, to pay tuition, to catch up on mortgages. Others may use a sum like this as a down payment on a house. Businesses can be launched on $25,000. To some, $25,000 won’t be that big a deal, so they’ll invest it or put it into a bank. Along the way, as it passes from hand to hand, as one person’s expenditure becomes another’s revenue and profit, it will become taxable, and Uncle will start to recapture his investment.

It really doesn’t matter how and where it gets spent and saved, because never forget, children, that every dollar spent is somewhere saved. The key is to keep that money hopping. To keep breaking it up into pieces, and moving those pieces along. If it coagulates in financial companies anxious to build up capital to support their collateralized debt obligations/credit default swap garbage, the main if not the entire purpose of the exercise is defeated. And this is exactly what is happening now.

It has got to stop. Parents of my generation were raised to understand that children are not to be rewarded for bad behaviors. Sadly, that view has faded. It’s time to turn back the clock and give the money to the 99,000,000 of us that had nothing to do with this mess!

My Own $2.5 Trillion Stimulus: $25,000 to Each Taxpayer: Three guys hatched it at Three Guys—it’s better than World War III!