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From 2008 to 2010, more than 280 banks in the United States collapsed. Only five banks went out of business within the same length of time before that. This figure means that the financial situations our banks confront are worse than we expect. Information is too bad to be disclosed! Obama’s government did not enough to control and help the banks. It simply funded banks and encouraged them to give out loan. It hopes increase trading in the real estate market and support the price of houses.

We do not have to study figures in details. All we need is to simply take an overall look. Up until 2010, mortgages that banks give out totaled over 10 trillion dollars. When the real estate market goes down 20% to 40 percents, banks’ fund will actually lose two to four trillion dollars. It is said in this country over 14% households are unable or unwilling to pay their mortgages. When banks giving out loan they charged about 5% to 7% interest, 14% bad debt means that their mortgage business actually made them lost money. Another data report shows that American’s mortgage loan is 280% of their GDP income. Beside mortgage loan, bank’s credit cards and business loan should also confront the financial difficulty. Bad debts make our banks are actually bankrupt.

In 2008, the four biggest investment banks in the United State vanished. The major cause related to their CDS payment. CDS (credit default swap) are insurance contract that guarantee risk investments are not default. Many specialists believe that this kind of deal is just like gambling. In the game, the insurance buyers do not have to own the risk investment and sellers did not prepare fund to pay off the debts in case something happen. CDS is just one of the financial products that financial institutions design for profit and end up they were trapped.

In real life, we know people hardly kill themselves for claiming life insurance, life insurance therefore make sense. Even that returns for most life insurance are just like savings. For the term insurance that pays less premiums, insurance companies set time limit. They only pay when people die before certain age. Car and fire insurance also make sense because if people set fire and create car accident to trick insurance they will be investigated and their insurance premium will be increased.

Only insurance about credit defaults swap make no sense. Risk investment of course carries risk. How can we guarantee that businesses are not default? Business default or not are influenced by many factors and it is almost out of controlled by insurance company. For example, it determined by the company’s management, the CEO’s IQ, ability, conscience and luck. A CEO will care about his own life more than caring about the default of his company. A CEO cannot save his company when some powerful powers purposely sell the company’s stocks in the market.

Guarantees risk investment are not default obviously make no sense. It is just like guaranteeing gamblers won’t lose money in the casinos. We usually allow people to do whatever they want because this is a free country. However, we also set up laws to protect the public’s benefit and that is why we need government for it. Financial institutions that get into the CDS trading have no common sense but have power to manage the publics’ wealth. When they fail they simply walk away and harm the public seriously. They have no fund but let the government and the public pay for the messes they left. For that reason our government has the right to control the banks before crisis happens. What should we do?

1 . Understand that CDS is gambling and stop trading relate to that. Wave bank’s insurance payments for CDS. However, the banks have to pay back all the premiums to the CDS purchasers. If this policy need to be back up by laws. We can say that customers who have deposits in the banks are the first creditors and the CDS purchasers are the second creditors. Since banks are actually bankrupt, second creditors will lose the right of claiming profit but have their investment back only.

2 . Families that are able to pay their mortgages are mandatory to pay their payments. Banks have right to deduct the payments from their mortgager’s pay checks. Government should give job priority to mortgagers who unable to pay their bills. Government should also encourage home owners to change their properties to income properties. The processes will create jobs for the market and increase the value for properties. Its investment usually can be returned in two years from rents. This kind of consumptions actually creating wealth and is more practical then stimulating consumptions that relate to green concepts.

3 . Re-estimate banks asset basing on their market value. Any banks that have higher liability than asset have no right to give out bonus. All their profits have to be used to cover their liability until their have financial balance. We cannot let the CEO take out bonus in the year they have profit on the book and let them shrug their shoulders when they fail to collect their loan.