by Robert Griffith

Created on: December 15, 2008

It's time for triage. This is an emergency. The American economy is severely damaged and needs to be stabilized. Who did what, why, and who is to blame will have to wait. Treatment for the results of this savaging have first priority. An investigation of its causes, punishment of its perpetrators, and implementation of better policy is absolutely necessary, but first we have to stop the bleeding.

It's simple, but not easy. Step One: Stabilize the housing market. Step Two: Create jobs and increase American production of viable goods and services.

TRIAGE STEP ONE: The Housing Market

This decline started when banks formulated a mortgage-lending strategy which exacerbated an over-inflated housing values bubble. The banks ignored conservative, prudent oversight and deluded themselves into believing that they could lend enormous amounts of real property mortgage money at low initial rates with an adjustable rate kicker, bundle the inflated-value mortgages into blocks, and sell those blocks to investors who were told the investments were guaranteed by what was known as a SWAP instrument. Americans flocked to these new mortgages as housing values rose and a resultant financing and refinancing frenzy poured cash based on inflated housing values into the American economy.

Americans were not only spending what they earned at their jobs, they were spending the new cash value of their homes as well. When housing values declined and that cash was spent, the debt remained. Foreclosures resulted. The investors and banks who bought bundled mortgages became aware that they were not insured by SWAP agreements, and the gathering loss of value as foreclosures increased and property values fell rose exponentially. The over-pressurized ballon of inflated housing values supported and encouraged by mortgage lenders and their greedy, self-deluded lending policy lost pressure. The falling value sucked air out of the bubble, and every individual and economic entity invested there took a hit.

Now housing values are in free-fall and credit is practically frozen. Money is not circulating. The remainder of substantial assets and cash-on-hand is being hoarded by borrower and lender alike. Bank "bail-out" funds have disappeared into the books of the banks and is being used merely to counterbalance the red ink there. Triage step one needs to restore this circulation.

As an initial stop-gap we need an emergency brake applied to falling home values. Simultaneously, we need a stimulant to maintain a

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