The effect of this two-part solution would be to have the government cover the losses on the worst of the loans, refinance those which can be saved, and gradually move as many loans as possible out of the hands of government agencies or governement supported agencies and into the hands of private banks. Those private banks will be eager to buy proven, highly viable loans and the entire transition of all of these mortgages into private hands will likely take less than the 15 years proposed. While I would not include any of the irrelevant ideas currently being proposed like massive subsidies for ACORN's voter fraud campaigns or big energy incentive programs, I would follow this bill with an economic stimulus package directed at business, designed to increase capital liquidity and stimulate investment in the US by reducing the corporate income tax to 15% and completely eliminating the capital gains tax.
This is a classic, Roosevelt-style Square Deal, because it gives homeowners a second chance, minimizes the cost for the taxpayer, and ultimately takes the government out of the mortgage business and puts it back in private hands. By bringing in government control and restructuring, it becomes possible to stretch out the process of salvaging the at risk mortgages, using time during which those mortgages will generate income to serve in place of a massive infusion of cash printed to need and then later paid for in inflation and higher taxes. In a solution like this the needs of all the parties are addressed and while recovery may be slower, the ultimate cost for the taxpayer would be substantially lower.
Article comments
— go to most recent comments1 - Heloise
So the "folks" have now become leaders on major issues? All I see from leaders is political posturing and capitulation. Posturing is not leadership and capitualation is not leadership. Critical thinking--that's leadership.
Many experts agree with the people: the FEDS do not need to fuckin take over bad loans from downhome. They would F it all up! The accounting rules, my friends, have BEEN changed back when ENRON hit. I know I have worked for Reuters Thomson.
For books to be cooked nowadays means somebody's LYING!! It means one party is looking the other way. Looking the other way is not leadership. Lying is NOT leadership.
When a CEO or CFO LIES about the capital they have on hand, or the bottom line and it's big, then they get a BIG raise commensurate with how much they have made for the company. So, if you cook the books to say you have a billion dollars then you have multi millions coming in pay...simple. Lying is easy.
Thanks for your analysis Dave. God help us if this scam of a bill, as it is passes. I am blasting both McCain and Obama for lack of leadership. They are both caving into what they think Washington will do.
The bloggers were right about the Iraq war, Sarah and they are right about this: DON'T LET THIS PASS!!
Dave you've been reading Teddy, well JFK gave away his salary to charity. That's leadership.
Heloise
2 - Dave Nalle
No, Heloise. That's pandering.
And who is Sarah in this context? Palin? And what
bloggers were right about what aspect of the Iraq war? I guess you mean the Milbloggers who supported the surge, right?
Oh, never mind.
The point of the article is that there are ways to use the power of government to restructure this debt rather than try to bury it in money.
What you seem to miss is that there is a legitimate need for something to be done, because eventually the credit shortage which this situation creates will spill over to other businesses and the economy will grind to a halt.
Dave
3 - Lisa Solod Warren
There IS a legit need to do something to get over this credit crisis; my beef from the beginning is that the government was so damn worried about wall street and the market and so little worried about the real housing crisis, the people with ARMS and the unfair bankruptcy loans, PLUS giving the public a vested interest in this and making sure we got something for our money. Which was why Paulson's plan was such a sham... and which was why trying to push it through like gangbusters scared the shit out of everyone. If the government had enlisted the help of experts and congress originally, had gone slowly, and had handled this properly all the panic and anger could easily have been avoided but that has NEVER been Bush's way. It has always been ACT NOW and try and explain the reasons later. Which is WHY we got into Iraq and passed the Patriot Act and everything else he has royally fucked up. He has NO leadership qualities. And John McCain has the same jump in and let it all sort itself out later mentality.
Which is why people like Obama. He actually thinks before he acts. People act like thinking is a bad thing. Because, for most Americans it is seen as elitist, for pete's sake.
But asking for help, consulting with experts, looking at other options, and considering consequences is a good thing. It DOES NOT MAKE YOU A WUSS.
Shoot first and sort it all out later is not policy.
4 - troll
good idea - let's create a big agency...we could give these new jobs to all the people with mortgages in trouble and pay them enough to cover their debts
5 - Lauren
The plan you propose, in fact a better one, was approved by Congress and set into action back in July..But does people know about it...no!!
I work for a major bank, but we do not advertise the program. Homeowners are entitled to refinance their properties to fair market value, without penalties, with forgiveness of past due debt, and lower interest rates. But banks do nothing unless the client is aware and solicits the federal program. The only two requisites are that your home value have decreased and that you can prove your inability to make the actual payments.
Why are not the banks promoting the program...easy...most of the mortgages that are to be foreclosed are insured which means that the bank will received the insurance money plus the sale amount on the property. It's business for them, but the market is suffering in consequence.
On the other side, the mortgage market is in it's whole in extremely bad shape including community banks, savings and loans, and credit unions. I know a vast number of small banks that have been acquired by bigger banks because they can't deal with their losses.
6 - Marlowe
Lord... For the 2nd time in one week I'm actually agreeing with Dave. This isn't a bad plan and makes a lot more since then the failed bailout (I read that and my head STILL hurts).
It's a solid idea Dave. Send it to your congressman and senator. Seriously. It can't be worse than what the bobble-head boobs are doing.
Marlowe
7 - troll
"hope for homeowners" goes into effect today
8 - Joanne Huspek
RE: #5, she is right, there is help for those with good intentions on paying their mortgages but are struggling. I happen to know people who have made use of it.
Dave, this is a sound plan, probably sounder than anytihng that was voted on in the House. To me, that one was reactionary with no hopes of a return. In the end, holes can be picked on any plan, and I'm sure there are loopholes in what the Senate is coming up with today. No matter what happens, it will be extremely difficult to find anyone to trust to run any sort of fiscal plan. I'm wary of people in both parties.
9 - Cannonshop
Meh, Dave, I'd rather let Capitalism work (and the Moral Hazard Club eat their losses or die), but whether from right or left, that's not what's going to come out of D.C., so as a second option, your plan looks pretty good.
10 - Dave Nalle
Cannon, the problem is that the collateral damage from just letting the situation play out is potentially too great. Even my proposal would probably result in at least a mild recession. The fear is that no bailout will result in a full-on depression, probably worldwide.
I know I don't relish the idea of my retirement accounts basically disappearing when I'm in my 50s.
If the congress wants to pass a bill without generating massive public ire, they need to restructure it so that it doesn't have a bigass $700 billion pricetag sitting on the front of it. They either need to find a way to break that money up or spread it out over time or make actual cash play a smaller role in the solution as I've proposed here.
Dave
11 - georgio
Dave your plan sounds pretty sound and you explain it very well ..it seems that your plan would not put the burden on the next generation..I am far from a expert in this field but your idea makes sense ..but what about all the ppl who where just flipping ...should they get the same treatment?
12 - Cannonshop
#10 Dave, the word is "Potentially". People have a strange and fascinating tendency to struggle MUCH harder to prevent themselves from being destroyed if they don't think the rescuer is just outside.
13 - Dave Nalle
but what about all the ppl who where just flipping ...should they get the same treatment?
That's a moral judgment call which I'd feel very uncomfortable making, but which would have to be in the hands of the mortgage resolution judges. The fact that they are speculating rather than just buying a family home is seen as a significant difference by many people, but it doesn't really change the technical nature of the mortgage at all, and the fact is that they may have their homes at risk because of their speculation, having used that home to get the extra credit to overextend themselves. I'd tend to give them the benefit of the doubt and address the mortgages themselves rather than the motivations of the borrowers.
Dave.
14 - Clavos
Down here in Miami, at least, the "flippers" (at least the smart ones with good timing) all made a bundle long before the house of cards tumbled down. What money they might be losing on the properties they held at crash time is, in most cases, far less than they had already made.
Interestingly, a lot of them are back in the market, making "bulk" deals with developers stuck with finished, but empty, buildings. The flippers are buying several units at a time for "wholesale' prices, taking advantage of the developers' need to pay off construction loans in a dead market. Predators preying on predators -- I love it!
I don't think anyone who was flipping needs or deserves assistance. people actually living in the homes/condos they bought, yes.
But not the flippers.
15 - Dave Nalle
Hey, some of you guys digg this damned article. Some day I'd like to have an article make it into the double digits on digg.
Dave
16 - Silas Kain
Dave, Dave, DAVE. Run for office. Good job as usual. Perhaps we need more Blogcritics and their congregations stepping up to the plate and running for Congress. Al Barger your country needs you.
17 - Jordan Richardson
Now there's a scary thought...
18 - Dave Nalle
Al and I have both run for office as libertarians. I think I beat him with my record-setting 13% finish...
Dave
19 - Silas Kain
No scary at all, Jordan. I've listened to Dave on his show. He's a pretty reasonable guy and at least is one who will listen to many points of view. He's not as entrenched in his ideology as to think that there is no alternative. And, Dave, consider yourself "dugg".
20 - Pablo
Uh Dave its not a mortgage crisis, but in point of fact a credit/swap default crisis.
21 - Silas Kain
Or is it that the financiers have run out of PAC money and before those running for Congress can get their next "donation" they need to bail out the hand that feeds them?
22 - Daniel Miller
This just in
I can only hope that those qualified for expanded mental health care include our beloved members of the Congress.Dan(Miller)
23 - handyguy
Dave, your 'simple plan' is unfortunately not aimed very accurately.
This is not really about mortgages any more. The mortgages have all been stirred together, sliced into pieces and blended in a derivatives-fueled Cuisinart.
The 750 billion figure will start with just 150 or 200. But whatever the amount, what Paulson will be buying has the same relation to mortgages that a frozen margarita has to limes, or an omelet has to eggs: they'll never be recoverable in their original form.
And these securities are owned by thousands of financial institutions all over the world. Thus the danger of a worldwide crisis and the necessity for a big solution.
The much maligned former Treasury secretary Paul O'Neill had an interesting alternative tonight: the government doesn't buy the securities but instead guarantees their value at some amount that would allow them to be traded and sold. This way the government would make money charging interest on loans rather than getting into the securities buying and selling business in such a huge way.
But as he pointed out, whatever ideas anyone may have as alternatives, it's the Paulson plan that's on the table, and the Paulson plan that will pass.
24 - El Bicho
"tucked away in the tax provisions is a landmark health care provision demanding that insurance companies provide coverage for mental health treatment--such as hospitalization--on parity with physical illnesses."
Not actually tucked away. From what I heard on TV, which admittedly may well be wrong, is that since the House needs to initiate bills and failed to pass the bailout along, the Senate took the bailout and attached it to this health care bill which was already in process in the Senate.
Seems more like political theatre so the Senators could look like they were doing something about the issue to help calm Wall St.
25 - Heloise
A nice quote from "The Nation" He echo's Heloise's advice--let Paulson and his BFFs pay for the bailout.
"If a bailout is urgently needed, Sanders said, "Let Mr. Paulson and his friends pay for it, not people in Vermont making $30,000 a year."
Sanders also called for a major economic recovery package to put Americans to work at decent wages, a return to stronger regulation of businesses, and the breakup of giant corporations like those that got the country and Wall Street into the crisis. "If a company is too big to fail, it is too big to exist," Sanders said."
Breaking: The bill has passed Senate by large measure. But get this most of them are not up for re-election.
But my recent comment turns out was prescient when I called the bailout a "debacle" before it actually went down in defeat on black Monday, sept. 29th. A debacle is a sudden implosion. Hmm, I misspoke, but it was clean.
Heloise