Building a Better Bailout Plan

02/24/2009 12:00 pm EST

Focus: MARKETS

Nick Atkeson

Partner, Delta Investment Management, LLC

Nick Atkeson and Andrew Houghton of ChangeWave Options Trader have their own six-point plan to rescue the financial system and rebuild a 21st century economy.

We all want the economy to recover, as evidenced by the number of recovery plans we are seeing.

So far, all of the plans have two features in common.

First, they are all motivated by fear. "If we do not act," the plan sponsors plead, "we will all suffer dire consequences." But we have yet to see any serious attempt to analyze and quantify these "dire consequences."

Second, the plans assume we must fix the institutions that got us into this mess to stabilize our economy.

Common sense dictates that plans motivated by fear are generally not good ones. Since Bank of America (NYSE: BAC) and Citigroup (NYSE: C) received multibillion-dollar initial cash infusions from the federal government in October 2008, the stock values of both companies have declined by more than 70%. Many analysts firmly believe the equity value of these two banks is zero.

Watching the US government withdraw money for the next great plan from the giant "taxpayer ATM" in the Treasury is akin to watching Ruth Madoff withdraw $15 million from phantom investor accounts. At some point, we all say, "Enough already."

If we are going to mortgage our children's' futures, why don't we invest in their futures rather than our past?

Forget saving the failed institutions that sank our economy. Let's move on with new and better institutions.

Let's take our taxpayer dollars and focus it on parts of the economy that will pay dividends for years to come.

We recommend spending our bailout dollars on the following endeavors:

1. Make the United States the world leader in new energy technology and supply. Leading the world in reduced oil dependency will make us more secure, wealthy, and healthy.

2. Revamp our health care delivery system so all Americans have basic health care, while the cost of delivering care is substantially reduced. Energy and health care represent more than 20% of our national expenditures. They also represent huge areas for new growth and innovation that will immediately impact all of us.

3. Rebuild our public education system. Better educated, more competitive young workers will once again be a differentiating force for the US in the world marketplace.

4. Rebuild the electrical grid, not the highway system. In 1950, Americans needed highways to travel and generate commerce. In the 21st century, we travel electronically. Invest in the future of commercial infrastructure, not the past.

5. Terminate the Credit Default Swap (CDS) market. This action will de-leverage our economic system by trillions of dollars without costing a single penny of taxpayer money.

6. Allow the free markets to write off bad assets and default on excessive debt. In a relatively short time, the sins of overleverage will be washed away and new institutions will emerge to lead us forward. It should also do a fairly comprehensive job of removing those decision-makers who led us down the debt debauchery path.

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