Note to the Fed: Lower Rates By 1.00% to 0.50%

The Fed should immediately cut interest rates to zero. The Fed has a chance to get in front of this crisis. Acting quickly and with force would be seen as a positive by the markets. Act now and signal to the markets that you mean business.

IRAs and 401Ks Can Help Home Owners

Home owners struggling to make housing payments should be a focus for regulators. Many home owners on the edge now will likely face difficulty in the days ahead. Some may even lose their homes.

The Saturday NY Times in an article this past Saturday mentioned a plan by Daniel Alpert. His plan consists of temporarily turning a home owner into a renter for 5 years. I will take the 5 year period from Mr. Alpert's plan. Also recently both presidential candidates mentioned a temporary reprieve on withdrawal penalties for 401k plans. I will use that 401k penalty reprieve.

Now my plan. It allows home owners to withdraw cash from their IRA or 401k. Penalties would still apply but will be considerably less. When a person under 59 years of age withdraws cash from an IRA he is assessed a penalty and required to pay taxes on the income. The penalty is 10%. Under my plan the IRA holder will only be assessed a penalty of 2% for 2009, 4% for 2010, 6% for 2011, 8% for 2012 and 10% for 2013. The regular income taxes would still apply. The maximum amount per year will be $18,000.00.

This plan would allow home owners in trouble to withdraw assets from their retirement accounts to help pay their current needs. The big problem with this plan is that the home owner is 'robbing' his retirement account. This could be very harmful as the money withdrawn from an account will not be gaining in value. Plus the number of years it will take to catch up will require the home owner to place much larger sums into a retirement plan.

That said this becomes a question of which is more important to a person - keeping a home under any circumstance or retiring on schedule. Maybe this decision would be best left up to the home owner. Just my two cents.

I am going to refine this a little but wanted to get the idea out there in the interim.

Incentivize Recapitalizations and Reward Lending

To get the financial system to function again the regulators should come up with ways in which to :

1 - Incentivize Recapitalization of the banking sector. This can be done by a number of ways. Perhaps one way is for companies to guarantee share prices at which recapitalizations are done. Lets say company XYZ needed cash and decides to try to sell shares. Lets say potential buyers have the cash but are afraid to make a purchase because of fears of a stock drop which would cause losses. If company XYZ offers the share buyer a guarantee the buyer may be more likely to step in. The guarantee can work something like this: If the purchaser of shares makes a purchase then the share price will be guaranteed for one year. If the price goes below the offering price at any time on a closing basis over the 12 months following the purchase then company XYZ will make up the difference by offering the buyer more shares or cash. This will likely help convince buyers to step up and buy shares. It may even create a stampede for anyone who wishes to buy the stock. To make this a fair offer, all shareholders should be allowed to participate.

2 - Reward lenders for lending out there cash.

What those incentives could be is an important question and needs to be examined more thoroughly.

The Fed Should Lend Directly To Borrowers

Since the Fed is pumping cash into the system via banks but the banks are still being stingy with their cash the Fed could go around the banks and become a direct lender.

The Fed can go right to the borrower and lend cash. This would likely be a very difficult step since there are so many financial institutions located where borrowers want to borrow. But maybe via an electronic venue the Fed can become a direct lender to anyone who wants to borrow.

I know the semantics here would be difficult. But in reality credit is the lifeline to our economy and it needs to be lent to borrowers at reasonable interest rates. The Fed has to think outside of the box and do whatever it takes to get money into borrowers hands.

Just a thought. For these rocky times all options should be considered. Even something from out of left field like this.