Avoiding Moral Hazard While Reducing Debt

There is a way to avoid moral hazard and bring about much needed debt relief. Simply require that the principal on all loans be reduced by 10% plus reapplying 80% of all paid interest to the principal of those loans. Apply this to all loans, whether mortgage, business, auto, credit card, student or other personal loans. Cap the value of  principal reductions at $250K per person and refund the losses to banks and credit unions who have not received TARP funds. Banks which have received TARP funds have already been compensated in advance by tax payers. In additions we should re-instate Glass-Stegall  and put in place universally binding usury laws.

The Federal Reserve should be abolished and replaced by constitutionally authorized agency of the congress which is not permitted to increase the money supply more than one percentage above the unemployment rate and not allowed to loan money at more than twice or less than half the inflation rate. This rate will be referred to as the congressional lending rate. The prime rate at which banks borrowing from the congress can lend to other banks and credit agencies should  be not less than half and not more than twice the congressional rate. Loans to businesses and for home mortgages shall not exceed twice the prime rate. Interest on personal and auto loans shall not exceed 3 times the prime rate and interest on credit card and all other loans shall not exceed 4 times the prime rate.