Bailout solution

I figured out how to solve this credit liquidity thing. The treasury doesn't bail out investment banks directly. They bail out the debtors, putting money into the system from the bottom up.

First, the U.S. government pays off all student loans. That's about $45.6 billion, as derived from figures found here.

Next, we selectively pay people's credit card debt. Everybody with a credit score over, say, 700? Your debt is effectively gone.

I have no legal way to know how much money that is, but somewhere I read that $2.2 trillion in the U.S. was charged to credit cards in 2007. Using WAG figures, I'll say that only 75% of that was carried as a balance, and of that number, perhaps 20% is held by people with credit scores 700 or above. That's $330 billion.

Here's why this is great:

• Banks that made bad decisions face consequences for their bad decisions. No bailout.
• However, there IS liquidity now in the hands of lenders. Not the same lenders that were in action before, but please see point 1.
  
• Some of these student loan lenders can now get competitive commercial interest rates for their money rather than the federally mandated lower student interest rates.
  
• About 3 million young, bright, educated people, the people who were willing to take on debt so they could do better in the future, the kind of people you want to give flexibility -- basically, the top 3 million of the next generation -- suddenly have more options.
• The most responsible citizens (as measured by credit rating) are given similar boosts. Thus, people who are wiser with money are given more money to be wise with.
  

With these two groups relieved of significant debt, there's roughly $375 billion back in the system, in the hands of existing credit agencies, who already made the choice to loan money to reputable borrowers, and now have the ability to make further judicious loans to commercial concerns.

This also frees up millions of Americans to spend new money that would have been going to debt repayment. Some will go back into debt. Many, I think, will invest the newfound flexibility.

There are problems with this system. Mainly, it absolves the least risky debt in America, when the problem is with super-risky debt. The super-risky debt is still in the system, and will continue to drag. But maybe that's okay.

As always, Mr. Paulson, my email address is in the right sidebar, and my consulting fees are quite reasonable.

Mr. McCain, please proceed to Mississippi to attend tonight's debate.