Treasury Secretary Tim Geithner has to figure out how to revive a financial system that is on life support, dying from self-inflicted wounds. The problem is, the patient isn’t responding to the current treatment, so more of the same is not a solution.

Geithner’s three-point plan contains some new medicines but its essence — letting the banks in on trillions of taxpayer dollars — is more of the same.

Here’s another idea. Let’s use free-market competition to get the financial markets serving those who need it most: workers and small businesses. How?

Instead of the government setting up a “bad bank” where all those toxic assets — bad loans and the like — would go and wait for some later selloff to private investors, the government should set up a “good bank.”

Take Geithner’s proposed couple of trillion dollars and make it directly available for job-creating businesses, mortgages and student loans. The good bank would provide needed services private banks can’t and/or won’t provide.

It could take over existing “toxic” mortgages, paying a realistic price for them, reflecting the actual value of the home, with 30-year Treasury bonds.

There should be a national moratorium on foreclosures for at least one year, until who owes and owns what can be investigated, along with predatory lending practices, perhaps by a special task force set up by Treasury and Justice.

It would be the model for the industry — full transparency — and putting the public welfare first would be its mission.

There’s money to be made with such a business plan. The good bank’s profit would be reinvested in the bank and in public works programs and job creation, especially in growth areas like retrofitting buildings and homes for energy efficiency, green technology and alternative fuels.

Letting the Chase, Citigroup, Bank of America cabal do more of the same with taxpayer money, even with the slight regulation proposed like caps on salaries, means they will invest only in ventures with the highest rate of profit, demanding businesses bust unions to reduce labor costs (lowering workers’ wages and benefits). We saw that with how Bank of America handled Republic Doors and Windows.

Competition from the public sector would give the private banks a dose of their own medicine.

Published February 21, 2009