BANK STABILIZATION PLAN, DOES NOT REQUIRE ANY TAXPAYER OR GOVERNMENT FUNDS! BANKS OR INSURANCE COMPANIES CAN ALL USE THIS PLAN!

We have watched in awe (horror?), as the Treasury, Congress and their financial advisers have attempted to rescue banks and insurance giant AIG.


The entire attempt at stabilizing the banks and the Insurance giant was based on simply giving them funds that approximated their losses and those funds could be unending.


There is a better way, and it does not require one cent of government funds (taxpayer funds) to achieve stability in the banking industry and the insurance industry.


We have provided the plan outlined below to select members of Congress and CEO's of key banks in the hope that they consider it as a substitute to the phenomenal and unending cash black hole that is currently the plan.


BANK STABILIZATION PLAN

NO GOVERNMENT FUNDS TO BE UTILIZED

BANK RESCUE PLAN FOR THE UNITED STATES AND ANY COUNTRY

NO CASH FUNDS ARE NECESSARY TO FUND THIS PROGRAM

JUST THE FULL FAITH AND CREDIT OF THE GOVERNMENT

RE: BANK STABILIZATION PROGRAM

This memorandum is prepared after an examination of the proposed “rescue” announced by the Treasury Secretary and after evaluation of all the proposed means of dealing with the bank’s problem loans and future capital deficiencies.

THE ANNOUNCED PROGRAM IS NOT ONLY COSTLY TO THE TAXPAYERS, TO THE TREASURY, BUT HAS NO GUARANTEE OF SUCCESS TO EVER GET ANY MONEY BACK, WHILE THIS PROPOSED ALTERNATIVE PROGRAM DESCRIBED HERE, COSTS NOTHING AND CAN BE INSTANTLY MORE EFFECTIVE, THUS CAUSING THE ENTIRE WORLD’S FINANCIAL SYSTEMS TO STABILIZE.

Our group consists of seasoned businessmen and investment professionals involved in private investment banking/consulting engaged in the acquisition, valuation and structuring of over 3,700 businesses since 1985. This total includes valuations of banks, manufacturing businesses, wholesale distribution, printing, contracting, brokerage of securities and real estate, retail and trucking companies.

We have been intrigued to see the significant funds committed to the “rescue” of banks and investment banks, when no such funds are actually necessary to affect the necessary stabilization.

In order to understand the simple principles of the program, it will be necessary to outline the “financial impact” of the problem as it exists in the financial markets, and the necessary means to quickly (almost instantly) establish order in the markets and revive normal lending at all levels.


The description of the BANK STABILIZATION described herein, excludes any management changes or other means that the parties may wish to utilize in the future relating to the institutions participating in the program.

THIS PLAN ONLY DEALS WITH THE MECHANICS OF SETTING UP THE NECESSARY MEANS TO ACCOMPLISH THE STABILIZATION.

The proposed program is applicable to ANY financial institution, any asset size and, any country can utilize its principal operational means of accomplishing the necessary stabilization of the institution in question.

W will attempt to provide a short yet detailed synopsis of the simplicity of the plan based on a hypothetical example of a hypothetical FAILING or failed BANK and how it would “play out” in stabilizing it without the use of ANY government funds.

BASIC PRINCIPLES OF BANKING AND LENDING

All private ( non-government) banks in the world, operate on the same business model.

The descriptions herein are for basic illustrative purposes and not meant to be full legal compliant disclosures of any type. These illustrations and descriptions are made for purposes of an illustrative explanation of the Stabilization Plan.

A bank charter is issued to a bank to operate as a bank; taking in deposits, making loans, etc., after it organizes itself with an initial capital base of the amount deemed necessary for its planned operations.

The starting capital is the amount of a “cushion” to protect its depositors’ assets in the event of operating losses which could wipe out their deposits. Typically this capital amount is a ratio of maximum liabilities of some type which the bank needs to adhere to in order to provide a degree of safety to the deposits entrusted to it.

For instance, a bank with $1 BILLION in deposits may be considered a relatively secure bank, if it’s capital is $100 million: or 10% of its assets. Often the smaller the bank, the larger percentage of capital it may have as it relates to its total assets, while large international banks may be able to have smaller ratios. This is just often a desire to have less leverage by the smaller banks which are typically locally owned and do not engage in much lending outside their immediate trade area and may further have “conservative” lending policies and a local board of directors, allowing less loans to be outstanding.

However, no matter what the size of the bank, they all make loans and take on collateral they deem adequate for the variety of the loans that are made.

When a loan is not repaid, or its scheduled payments are not made according to its terms, the bank then determines how such loan is ACCOUNTED FOR. It becomes a collection matter, a foreclosure or an asset seizure of the underlying collateral or a restructuring of some type to bring the loan into compliance or to have it repaid.

Each of the above actions causes the bank to record a profit or loss; typically a loss of some type. The bank tries to minimize the anticipated loss through its own means designed typically to recover the maximum amount of the outstanding loan amount.

This LOSS, then directly affects its capital base, by lowering it in the amount of the loss. Any profits that the bank makes that year are first added to the capital base and often “cushion” the losses incurred in its lending; that is typical banking.

The net result is that the profits are greater than the losses, and the bank is profitable for that year. If on the other hand the bank’s losses are greater than its profits from all its loan activities, the CAPITAL of the bank decreases and its RATIO gets smaller; it’s cushion is smaller and it becomes a weaker bank with less capital.

When a decrease in capital occurs, the bank may consider what means it will use to bring up its capital to a higher amount. Typically, when the markets functioned normally, the bank may simply solicit its existing stockholders for more capital, or go into the capital markets and have an investment bank arrange a private placement of more capital.

This may no longer be the case even if temporarily.

The government has become the new investor of LAST RESORT, without having it become so.


CURRENT BANK RESCUE PROBLEMS

The government has “invested” into banks whose losses are now decreasing their capital or has arranged quickie mergers with stronger banks.

However, these arrangements under either option have resulted in the government having to PAY billions to the surviving institutions to have them properly capitalized, since they may incur or have incurred losses decreasing their capital and their capital ratio.

At this time the actual amount that may be paid is unknown. Speculations by experts predict trillions and trillions more that can possibly be paid out.

ALL THESE PAYMENTS WILL INCREASE THE DEFICIT AND THE FEDERAL DEBT, BUT THE RESCUE DOES NOT HAVE TO COST ANYTHING!

Under the present method of “rescuing banks”, the government in effect balances the loss or decrease in a bank’s capital by providing it with REPLACEMENT CAPITAL in the amount equal to its loss or projected loss.

It becomes the only willing investor in a bank; a BAD bank.

This replacement capital is taking many forms such as loans, stock purchases and the like, with no real ability to know when it may, if ever, get the money back.

Furthermore, the government is then considering burdening itself further by acquiring the “toxic assets” that caused the losses at the banks, often being unable to establish a value on those assets, thus causing further losses to the government of an unknown future amount.

The losses to the government could continue on and on without end under the present program as more banks are closed, merged and each one requires the government to assist in its sale, closure or merger.

Under the present system the problems may and could continue, theoretically forever.

NONE OF THIS IS NECESSARY TO CAUSE THE TOTAL STABILIZATION OF THE BANK OR BANKS IN QUESTION.


THE BANK STABILIZATION PROGRAM

NO OUTLAY OF GOVERNMENT FUNDS AND A PROFIT LATER

There is no pressing need for the government to immediately inject funds into money losing banks and jump at every one that is losing money or decreasing its capital base. They can continue operate without great fanfare and without ANY GOVERNMENT FUNDS.

This by no way implies that the management should not be put under government supervision/oversight, but that is a different matter to be dealt with separately and not germane to the explanation of the STABILIZATION PROGRAM.

Simply put, the program relies on the good faith and credit of the GOVERNMENT as the central important component of its success. The USA and other large governments are capable of executing this plan in their own countries, avoiding ANY direct payments being necessary by the government.

The program is the quick fix that the financial markets expected but did not get from TREASURY or anyone else. They need a quick fix and understandable solution, NOW.

The STABILIZATION PROGRAM works like this:

When a bank is identified as needing financial help, the TREASURY provides it with a TREASURY PREFERRED CAPITAL NOTE, to supplement its existing capital.

The NOTES are in the amount needed to shore up its regulatory capital ratio to the necessary amount. The NOTES are either payable (at face value) or exchangeable into stock at a future date if that work better for the TREASURY.

In effect, the TREASURY makes money on this program as pure profit in either case; exchanging the notes for stock or getting paid (since it invested no funds).

NO GOVERNMENT CASH is provided or needed, since the troubled bank needs no cash to continue to operate. There is no run on its deposits, and it can operate in the ordinary course of business with Federal supervision that the TREASURY can devise for its officers, directors and otherwise.


The bank does not have to make asset valuations, the bank does not have to sell any assts to the government-the bank does not close. It operates business as usual with the new CAPITAL NOTES making up the capital shortfall.

There is no need to pay out millions, billions or otherwise to rescue every bank that may need to be rescued. The NOTES are issued by the TREASURY…there is no need to have the financial markets worry about ANY bank.

As the banks continue, they may have losses or write-offs or finally establish derivative values as they are “worked off” in the ordinary course of business, but none of this costs the government or taxpayers any money.

THE TREASURY CAPITAL NOTES provide the needed capital base and capital ratio for the bank, any bank, without any need to pay out the proposed billions and trillions.

Of course the normal banking business needs to continue with lending standards that are appropriate, but there is no run on the bank and its future assured due to the Government NOTES replacing the diminished capital of the banks.

Suggestions are that the amount of the provided NOTES as a percent of capital of the bank could be the future calculation of what percent of the bank’s stock they can be exchanged into. For example, if a bank has $1 billion in capital now but receives $250 million in NOTES, those notes may be convertible/exchangeable into 25% of its stock.

THE GOOD PART-PAYBACK AND PROFITS FOR THE GOVERNMENT

Under this program, the government puts out no funds, but will be either repaid at the face value when able, or it will convert the NOTES into shares that can or will be sold in the market again creating a PROFIT to the government.

If one considers that there could be $1-$2 TRILLION in NOTES to be issued, the PROFIT to the government can be in that same amount in the future, as the industry stabilizes.

We always wanted to do something special for the USA, as citizens and this may be it….for our President and its elected members of the Congress to use if they so choose.


This financial crisis needs to be dealt with, and until there is a stable banking system that is understood by the financial markets all over the world, there will be continuing financial instability.

The announcement of this program, by the USA, will allow all the other “problem” countries to “clone” this process in their countries, and consider the USA as the world leader that it is..

This may make friends at countries now facing melt-downs slowly, many of which will want to warm up to the USA due to this financial solution being presented by the USA. The world is waiting for our country for leadership.


The viability of the worlds most important countries financial and banking systems are at stake. We hope that this will aid the stabilization of the markets.