The only important piece of legislation to enact as rapidly as possible is the new regulations on financial transactions, specifically those governing securitized debt and other derivatives, championed by Congressman Barney Frank. To use his words, “We will make every such transaction transparent.” Forget about special taxes on banks or capping Wall Street investors’ bonuses, these are side shows.

Serious people know that the main block on our economy is lack of credit. Small businessmen are a chorus of complaints about not being able to get financing. Home buyers are still not getting the loans they got five years ago. Even state governments have trouble raising funds. Until credit becomes more freely available consumption will not rise significantly and the economy will continue to languish.

Now I am brutally aware that most people today blame “easy credit” for the “Great Recession.” People were using the equity on their homes to live way beyond their means including buying a home too expensive for their incomes. When the equity vanished, panic set in leading to a financial crisis and then general recession.

I am amazed by people who think the money supply fell though a drain into the ether. The money is still there. However, in the wake of the financial panic we shut down the main use for investment funds, investment in debt. We put our funds into “cash” which actually means US Treasury bonds. The result is that the Federal Government became the only “person” able to borrow and it borrowed at very cheap cost, as little as 1%. What we were left with was a situation in which private consumers, including businesses, were not able to borrow, so thus not able to buy. In their place came the Feds who were able to borrow and spend. If there had been no TARP or Stimulus Plan the Feds would have had to invent some other way to use the funds.

Another concept that we must rid ourselves of, banks do not lend money. Banks act as intermediaries between borrowers and lenders. The lenders are investors with money to invest. The best investments are debts since they pay the best return and have the best prospects for making those returns. So the banks and other financial organizations take funds from investors and lend them to borrowers. This is called “securitized debt.” And it is the largest source of credit in the USA.

I have consistently stated that we will not get our economy on the path to prosperity and job growth until we restore the securitized debt market to its pivotal positon in our economy. And it is aleady happening, since this investment still pays the best returns. If you doubt me, just ask any of the Wall Street crowd why they are receiving big bonuses again.

This is why I consider Barney Frank’s package of financial regulations the legislative imperative. We need, and will have, a vibrant securitized debt market again. However, this time we will need to be able to monitor and control it so as to avoid the panic we had in late 2008.