A libertarian socialist engineer solves the financial crisis

Both Democrats and Republicans are now in the grip of the banking class.

Transparancy is more powerful than regulation.

The Engineers versus the Oligarchs

by emeritus professor Jon Claerbout, Stanford University, National Academy of Engineering

Let us replace the finance "industry" run by law and econ grads of Harvard and Yale.   People are too corruptable!   Let us replace it (most of it) by a computer program written by grads of Stanford and MIT!

Financial industry profits as a share of all US industry profits has recently been as high as 40%.   Obscene!   Paul Krugman writes, "There's no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous paychecks", so let us begin plans to replace them by software.

1. Generous loans from the taxpayers to the taxpayers (interest free in time of crisis). A solution that does not distort the economy. A solution that is politically acceptable. A solution that is not easily corrupted by Washington insiders (think Freddie and Fannie). IRS knows how much taxes you have paid in the last some years. IRS knows how to get the loans back. IRS can start the program fast. A solution that can be scaled up or down, can be scaled quickly, scaled to whatever size is needed.

   Let the taxpayers decide what to do with their quick new cash, pay off a credit card, pay down the mortgage, save it in a bank, invest it in a market, or spend it in Detroit or in Alabama.

   In my generation, the Democrats took money from the rich and gave to the poor. Now they take money from the taxpayers and give it to the bankers!   Crazy!   For starters it looks like $2500 for every American man, woman and child.   Insane!   And that is without considering the terrible social costs of the present downturn!

   Specifically, over the next year anyone should be able to borrow money interest free from the federal government. Amount limited to taxes paid over the last three years. Repay at a rate of 10%/year. Available to businesses too!   Flexible.   Who needs a "multiplier" for a politically neutral program that can be scaled up fast?

   When the government collects money for social security, they should invest it somewhere real, like mortgages for tax payers. Don't put it "in a fund"!

2. Home sale? mortgage? Don't let the lawyers handle it. Imagine each auto/home insurance company drew up contracts with its own lawyer. Chaos! No consumer would know what they were buying. There are state devined standard policies we all must chose from. Likewise mortgages should come in standard forms chosen by the government suitable for putting on the web. Harvard professor Elizabeth Warren proposes a consumer financial protection agency.

   All mortgage information belongs in a government data base suitable for use by researchers and tax men. May as well go some steps further and cut out the middle man. Let the government hold the money. This is not rocket science requiring big brains and huge commissions. Now the bankers get cheap money from the government that they lend to the public at high rates. Foolishness!

3. The federal government provides a secure bank account for every citizen. This account is insured by the federal government. No private financial organization is insured by the federal government.
   1. Each citizen account has two numbers. A public number for anyone who wants to give you money and a private number for when you want to ask the government to pay someone for you. They've had this in Europe for 50 years. No need for a credit card company to soak your vendor (passed through to you) for 3% every time you buy groceries or gas.
   2. You no longer need a checking account.

4. Gather ideas for code specification. Much of the paper work of the financial world belongs in a government computer. It would certainly limit the possibilities for fraud, and lower the need for fees. In many countries all large financial transactions must take place through a government bank. How much of all financial transactions could be replaced by a centralized computer depository? Perhaps all of it. It's time to gather ideas, to call for proposals.

5. Mortgages for the poor: Institute a 10% tax on landlords that flows into a federal savings account in the name of the renter. The renter can draw from his account only for a home mortgage, or at his retirement.

6. Kill Fannie and Freddie! Fannie and Freddie would not exist without government funding. Yet we find them paying their officers tens of millions of dollars/year while lobbying congressmen and senators and advertising on TV how wonderful they are.

7. New tax bracket, 90% tax bracket for anyone making more than the president of the USA -- retroactive two years. Rates were higher than that in 1963 (historical rates). Pay restraints at any state-backed institution!

8. Outsource the data processing for all this to Google.

9. Let Engineers run the country instead of Lawyers and Economists.

10. Toxic assets? Don't allow those who created toxic assets to benefit from unwinding toxic assets. Fire them instead!

11. Finally, a technicality for engineers: Wizard economists tend to blame the Gaussian assumption for their failure -- the black swan. Another assumption that can fail is the stationarity assumption -- that the statistics of yesterday are like those of tomorrow. Predictability is lost even in a wholly Gaussian world if variance and covariance change with time. As an exploration geophysicist I see many attempts to analyze terabytes of data for petroleum exploration. More often I see failure in stationarity than in gaussianity. Especially covariances can change unpredictably and rapidly. Paraphrasing a physicist, "Economics amounts to perfect interpolation and meaningless extrapolation."

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