Geithner's Folly: The Bank Rescue Plan Is a Disaster in the Making

[NicholeW.]

Geithner's Folly: The Bank Rescue Plan Is a Disaster in the Making
By Brad Reed, AlterNet. Posted February 11, 2009.

http://www.alternet.org/workplace/126354/

The financial bailout plan unveiled by Treasury Secretary Timothy Geithner yesterday reminded me of the time my cousin Jethro Billy Rex Reed came over to my house and offered to pay me $50 for the privilege of scraping roadkill off my street.

"Well gee," I said to Jethro.  "What are you going to do with all that roadkill?"

"I'm gonna sell it for eatin'," he said proudly.  "The market for grilled flattened squirrel is booming right now!"

[tekla]

http://www.counterpunch.org/hudson02112009.html

There is an alternative to ward all this off. A debt writedown, followed by a land tax so that the "free lunch" (what John Stuart Mill called the "unearned increment" of rising land prices, a gain that landlords made "in their sleep") would serve as the tax base rather than labor and industry being burdened with an income tax.

One move would be to prevent banks from lending against the land's value. They could lend against buildings, but not land. This would cut the maximum permissible loan to 50 to 60 per cent of the total property price – unless the government did what classical economists advocated and tax the land's market price (its rental value) as the tax base, shifting the tax back off of labor. This would achieve the kind of free markets that Adam Smith, John Stuart Mill and Alfred Marshall described, and which the Progressive Era aimed to achieve with America's first income tax in 1913.

A land tax would prevent housing prices from rising again. This would save homeowners from taking on so much debt in order to obtain housing. And it would save the economy from seeing "wealth creation" take the form of the "unearned increment" being capitalized into higher bank loans with their associated carrying charges (interest and amortization). The key to real estate bubbles is to inflate site valuations.

[RebeccaFog]

I don't understand any of that.