To debate or not debate? That's the question.

Today's announcement by Senator McCain to cancel the debate on Friday while he meets with the President and Congressional leaders and Senator Obama about the bail out of our financial markets is definitely an interesting development. Is this politics or is this statemanship? I am not sure, but I am sure that the debate should go on. Precisely because of the financial crisis, it is now more important than ever to hear from these two candidates. With the election close at hand, the American public needs to see these two candidates together on stage debating the issues and their policies so we can make an informed choice about who should be the next leader of the United States for the next four years. While some will argue as Mr. McCain that the crisis to too important to hold the debate, others will argue that this is simply a political ploy on his part to change the dynamics of the campaign which of late has not been going in his direction. I will give him the benefit of the doubt about his intentions, but still make the case that taking a few hours out on Friday to hear from these two candidates is just as important to the future of the country as the financial rescue plan. As Senator Obama has said, a president also needs to be able to do more than one thing at a time. So a few hours on Friday will not detract from them working all weekend on the crisis if they are needed.

What I do agree with McCain about is that the current Treasury proposal is not likely to pass the Congress. It is interesting that one of the most savvy investors in American history, Warren Buffet, just invested $5 Billion of his own money in Goldman Sachs. In exchange for his investment, he will get perpetual preferred stock and an additional $5 Billion in options to buy additional common stock at a specified price. Goldman recently announced that it was also restructuring itself from an investment bank to a bank holding company. In addition to being eligible to now participate in getting loans from the Federal Reserve, this may also be a move to set them up to buy distressed banks in the future. Warren Buffet is a shrewd investor so perhaps the Congress should follow his lead.

Instead of writing a blank check to Secretary Paulson for $700 Billion to do as he pleases without any oversight and no recourse, perhaps the Congress should consider setting up a bank holding company owned by the taxpayers since they are planning to use our money anyway. Setting up such a holding company could be a place to park distressed institutions while they clean up the mess. Additionally they could also attract additional capital from other central banks from around the world who are holding US Treasury bonds. They also have a vested interest in helping the US get through this crisis. Additionally, they could use money raised to invest as Warren Buffet has in preferred stock with options for the taxpayers' benefit to help recapitalize some of the banks. Meanwhile depositors will still be protected by the FDIC and the taxpayers have a chance at making some money when these institutions recover. Why should the taxpayers take over the distressed assests so private investors can run the recaptialized banks and make all the profit? You may wonder why the Federal Reserve recently relaxed regualtions to allow private equity firms to invest in banks? Could it be that these big investment funds smell an opportunity?

So what to do about "mainstreet?" How can we help the little guys who like the banks have extended themselves with mortgage loans that they couldn't afford, credit card debt, and gas guzzling SUVs? Well one idea is to offer a creative financing device for those who choose to take it. Perhaps something like a government shared equity loan whereby the lender has a share of the ownership in the house in exchange for a lower mortgage amount. Homeowners would have to repay the government out of the proceeds when they sell, but meanwhile this would lower the monthly payments. If they choose to, the government could add various provisions like a call provision after 10 years so that as the market recovers, people would have to refinance and repay the government. These loans would only be available for owner occupied residences and not speculators or investors. If people moved out of their house, it would automatically trigger a call forcing a sale. We could use our newly acquired Fannie Mae or Freddie Mac institutions that we already own, since they were taken over by the government. If borrowers tried to pull one over on the government, there could be an automatic loan provision to collect any deficiency though the IRS or a garnishment action. Anyway, the point is that there are creative ways to do this. Will people like these alternatives with some onerous provisions? Perhaps not, and nor should they. They won't like it anymore than a condition of the preferred stock investment that limits CEO compensation if a bank chooses to seek capital from the government owned bank holding company or rescue fund. However if the choice is between a shared equity loan or foreclosure, then it is their choice to make. We shouldn't make it easy for people who were irresponsible in fairness to the many taxpayers who are responsible. Responsible people didn't buy more house than they needed, they don't run up credit card debt, and they don't have expensive toys sitting in their driveway. Any rescue plan either for homeowners or businesses should not be an easy ride and it should have teeth in it to protect the taxpayers.

I don't pretend to have all the answers, but I know some people who might: the sage from Omaha, Warren Buffet, or legendary bond investor Bill Gross, or retired Fed Chairman, Paul Volker. In fact, if the Congress was to form a holding company as I suggested, these guys would be great to have on the board of directors. They should be asked to serve as a form of public service. My guess is that they would do it and as a taxpayer, I am reasonably certain that these guys would watch out for our interests. They would put America First.