Memo to Obama

2008 will be remembered as the year of the great bank robbery. For your economic program to succeed, we must change banking practices that are destructive to your economic program, create public outrage and destroy public confidence.

Your “big bang” strategy is the most brilliant and important economic initiative in decades. The prospect of congressional leaders sending you a “mini-New Deal” bill shortly after the inaugural is spectacular.

For the strategy to succeed, banks must end practices that constitute a direct attack on the program, a direct attack on the economy and a direct attack on consumers.

• There should be a freeze on foreclosures for at least six months to restructure and re-price loan terms. This would freeze the cascading housing crisis, allow housing prices to reach fair levels without the spiraling collapse caused by forced sales, and give borrowers time for the economy to heal.

The reason that half of loan reschedulings have not worked is that the economy continues to collapse while reschedulings have been too little, too slow and too late. Some lenders have begun short-term freezes. Let’s make this national policy and halt the foreclosure wave while the economy recovers.

• Credit card companies should immediately lower credit card interest rates for high-quality customers by 1 percent.

Credit card rates for all other customers should be frozen. The Fed has lowered rates by more than 400 basis points while banks have raised rates, causing great damage to the economy. This must stop. Now. The Don Corleone practice of 30 percent rates for customers who miss one or two payments should be ended because it destroys consumers struggling to remain afloat and forces bankruptcies that cascade throughout the economy.

• Banks should consider one- or two-month payment holidays for borrowers to support the economy.

Congress should consider aggressive moves to restore usury laws, amend bankruptcy laws and police bailout terms.

Mr. President-elect, there is good news if proper banking practices support your “big bang” economic recovery program, even after Secretary Paulson’s incompetent execution. Consider the Citigroup deal.

I was one of the original advocates of using the Plan B for Buffett policy, wherein government would capitalize banks through preferred stock, with dividends and warrants to buy common stock for taxpayers. Many of these programs, even poorly executed, will be profitable to the Treasury when the economy recovers.

In the Citigroup deal, the taxpayers would get back the principal and the 8 percent dividend. The warrants should have been priced at $4 per share, the closing price of Citigroup stock last Friday, but the Treasury secretary negligently priced them at $10.61 to buy 254 million shares of common stock.

Even with this sellout of taxpayers, if the economy recovers and Citigroup stock rises above $10, these warrants could be auctioned to private investors with billions of dollars of profit to taxpayers. This is true for similar deals, a fact not fully understood.

If bank practices destroy government policy, more money is wasted, more crisis looms and more public backlash will come. If banks do the right thing, we all prosper.

Budowsky was an aide to former Sen. Lloyd Bentsen and Bill Alexander, then chief deputy majority whip of the House. He can be reached at and read on The Hill’s Pundits Blog .