In an interview with Bloomberg TV on November 4, Professor Charles Calomiris discussed the economic challenges facing the incoming president, Barack Obama (watch video/WMV). Professor Calomiris said:

The most obvious set of issues is dealing with the financial crisis … We need to increase capital injections to the banks, improve the way they have been managed, and then we need to do a whole set of things to help the consumer: foreclosure mitigation, refinancing at lower interest rates and putting a bottom on how far the value of mortgages can go. The other major immediate issue — which has been neglected — is preventing the implosion of global trade … We are already in a situation where there is a lot of anti-trade sentiment the U.S., and [that] sentiment, especially [in] organized labor, is now ascendant under [an Obama presidency]. We are sitting on three bilateral trade agreements that Obama has been opposing and he’s already threatened to abrogate NAFTA …

The right formula [for banks], which is different than the one Secretary Paulson has been pursuing, is to maintain a more senior position in the bank with straight preferred [stock], no warrants, and to have less of a micromanaging role. But, more importantly, you have to help not just by injecting capital but by helping the consumer and the mortgage markets. That means direct loss sharing to mitigate foreclosures and it means helping healthy mortgage holders refinance at lower rates. And it means putting a floor in the market by guaranteeing a very low price for mortgages. If you did that, it would it preclude all those disastrous death spirals scenarios and have an immediate positive effect in elevating mortgage-backed security prices and CDO prices.

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