Dear Mr. President The Mattress is All We Have Left

Dear Mr. President The Mattress is All We Have Left

President Obama, The real problem with the banking institutions of the USA is not just bankruptcy. It is the amount of drainage the managers of the banks pull out of the system of money management. Every dollar drained off for bonuses and salaries seriously impacts the depositor. It is the imbalance between our interests and those of the people running those institutions that is driving us to put our money under the mattresses.

More than just the capital base of our banks is broken. The recapitalization by the government would otherwise have repaired this crisis more than it has so far. If there were no problems other than capital it would have fixed the system. The significant fact is the need for a new banking model is being felt by most of us in the poor to upper middle class. Let me try to articulate that need for you.

The alignment of interests between merchants who run our banks and the rest of us is broken. It cannot be repaired so simply, not just by the government stepping in and pumping new capital into these institutions. We are only propping them up in a market that is disappearing. Their services need to be replaced.

It requires trust and faith in the management of these complex arcane businesses. That trust died months ago and is a major reason these banks are still failing. No one trusts their promise to repay their debts to depositors, investors or creditors anymore. That is beyond the power of the government to restore in the short term.

A second problem exists in the fabric of our financial structure. Intermediation by the banks, the government, the brokerage houses and even the hedge funds has made it harder for those of us with a little capital left to directly invest it. Investing in good companies too small to be listed on a market, too new or not so addicted to growth that they risk everything is really hard today.

We need new mechanisms and new laws to protect investors in the Internet age. It is clear from the Madoff Scandal that the current laws are inadequate. They are also based on a model centuries old. Direct contact between investors and entrepreneurs is desirable and valuable. Intermediaries like Madoff, CITI and AIG are not. The current structure restricts the process of asking for investment and empowers those intermediaries..

Disintermediation would help remove some barriers to capital investment in small companies. It would also open the door for a lot of thieves if it is not carefully managed and regulated. There is always room for regulators to review transactions before money exchanges hands. That makes it possible to solicit investment without running into arcane rules before you are ready to take any investor's money. Those rules force inventors and entrepreneurs to use intermediaries to raise capital. That system is broken and needs to be replaced.

It is not the entrepreneur that represents the problem but the intermediary in today's market. The way to get the money moving again is to open up a new direct link between the Entrepreneur, the inventor and the public. 

Finally the nature of banking itself needs to be reviewed by people who think outside the economic box in which these institutions became too powerful to fail. We badly need to quickly disperse the power that has accrued in the hands of these institutions like AIG. Some people from far outside the current investment system are needed to think our way into a world where exponential growth in new industries will need funding. You might try what was used in weapons development in WWII, a group of Science Fiction writers who are also entrepreneurs and inventors and scientists could bring a lot to this party.

Industries like robotics, and genomics, and nanotechnology can be adequately funded and supported through the actions of millions of individual investors . That can be done without the intermediation of institutions that suck all of the value out of those investments before the small investor or depositor sees a dime of return. These industries will form the base for a new economy that is badly needed to rebuild our system of sound creation and distribution of wealth.

One more thing. We need to take the thieves out of the system and keep removing them constantly. That is a job for government and will always need to be done. We need better government insurance for small investors against theft if they follow the regulatory standards. We need less government insurance for major institutions that have been in league with the thieves whether wittingly or unwittingly. That is a short list of how to get the money out from under the mattresses. Thank you for listening.