America is broke. So take it, and sell it.

Few nations have had the level of fiscal profligacy demonstrated daily by America. Its financial ineptitude cannot be allowed to continue. It owes just too much.

What to do?

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Whereas national bankruptcy laws have for centuries provided creditors with solid rights against individuals and corporations (though the U.S. 1978 Bankruptcy Act damagingly weakened those rights),enforcement in bankruptcy against sovereign states has always been more problematical because of the military power those states possess.

Mediaeval Monarchs in both Britain and France took aggressive action against creditors who pressed their claims too vigorously. In the seventeenth century, CharlesII’s 1672 Great Stop of the Exchequer bankrupted several leading London goldsmiths, although notably on that occasion the state paid much of the claims in full, albeit with lengthy delays.

In the nineteenth and early twentieth centuries however, with Britain both a leading naval power and the center of the world’s money market, creditor attitudes were admirably robust.

When Venezuela defaulted in 1902, it believed that the Monroe Doctrine would bring U.S.protection to bear against any aggressive action by its creditors, primarily British and German banks. However President Theodore Roosevelt proclaimed “if any South American country misbehaves toward any European country, let the European country spank it.” After Kaiser Wilhelm II visited Sandringham, Anglo-German agreement was reached and a naval flotilla from both nations sailed for the Venezuelan coast, blockading the country for four months and bombarding coastal forts adjacent to Caracas and Maracaibo......................................

NOW.... America....

However the greatest “quick hit” realization from creditor management would come in financial assets. According to their latest financial statements, there are $3.1 trillion in mortgage assets on Fannie Mae’s balance sheet and $2.1 trillion on Freddie Mac’s (these totals are sharply up over the past year, as both institutions have been buying mortgage debt to support the market.) Of course, the government guarantee on this $5.2trillion of long-term paper would be worth very little.

However, each asset represents a housing loan, and even today the great majority of these housing loans are perfectly solid credits. With firm management from retired senior executives of British building societies, the good quality paper could readily be sold back into the private market at only a modest discount, since “prime” mortgages are as they always have been an attractive banking asset. By realizing say $4 trillion from these sales (while retaining outstanding the long-term Fannie Mae and Freddie Mac debt, which would remain backed by the government guarantee) the liquidity position of the U.S. government would be revolutionized.

Provided appropriate budget cuts were then made under the watchful eye of Singaporean fiscal managers, the United States would emerge from the process humbled but solvent.

Even more important, it would have learned the advantages of a private un-securitized housing market from the British building society managers, how to run a railroad from the Germans, the uses of cheap sweated labor from the Chinese and sound fiscal management from the Singaporeans.

There wouldn’t even be any need to burn the White House again...

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Exerpts from:
Martin Hutchinson, May 30, 2011

http://prudentbear.com/index.php/thebearslairview?art_id=10539