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The Bottom-Up Bailout Solution
By mentor24 | September 30, 2008
We all know that the bailout plan failed because the public is pissed off and would rather take a short-term financial beating themselves than reward the power elite who have been fleecing us for decades. The public is sick to death of trickle-down economics, and the outcry was just too loud for representatives to ignore.
So congress needs to come up with a way of getting cash back into the credit market in a way that is fast and fair to the public. Here it is:
We should take the $700 billion and simply pay down the mortgages of all the homes purchased between certain dates, (let’s say 2000 when real estate prices started going berzerk and 2006, when they really started falling). That’s it. Simple.
OK, I realize it isn’t that simple, and I anticipate some of the issues below, but first, let’s look at how this solves the problem.
I did a little research at the National Association of Home Builders (NAHB) website and found that there were about 26 million homes sold between 2004 and 2007. So let’s estimate there were about 35 million sold between 2000 and 2006 (pretty rough, but in the ballpark, I’m sure). Dividing into the $700 billion, that’s an average of about $20,000 per home. With an average home value of $200,000, that means about 10% of the home value. Follow?
So if you bought a home for $200K, the Bailout Commission writes a check for $20K that gets applied straight to your mortgage. You paid $500K, your mortgage holder gets a check for $50K, etc. So the first thing that happens is the lenders are all of a sudden flush with cash. They pay their obligations. The credit markets unfreeze. Financial institutions get back to business. (Hopefully not as usual).
Meanwhile, you’re happy, right? You may not have gotten a cash to spend but your mortgage is reduced. If you bought during those years you’re probably still under water, but not as much as before. So you’ll still have to take some lumps, but it will definitely soften the blow. You’re less likely to default and you feel more hopeful.
OK, before everybody starts tearing the idea apart, I’ll point out some of the potential objections:
- It’s Socialism! - Yeah, I guess it is. And there will definitely be some idealogues who will object to it on that level. But somehow I think those objections will come from the people who don’t benefit from the plan. I have a feeling the 40 million or so families who get those mortgage payments will be able to live with it.
- It’s not fair! What about all the people who bought homes before 2000? - Give me a break! You’ve enjoyed six years of super-low interest rates and hyper-appreciation. And now you want this mortgage reduction too? In the name of fairness? Please. And as for those who bought after 2006 when the market was already falling, well, I’m sorry, but that was just too dumb. You don’t deserve a break.
- It’s too complicated. How do we decide who gets how much? - We may need to come up with some formulas, but I actually think it will be pretty simple. It’s just a flat percentage of the purchase price of the home across the board.
What other flaws do you see with this plan? Let me know! And if everybody else thinks this is as simple as I do, let’s push it on our representatives.
Disclosure: In the interest of full disclosure, I should divulge that I am among those who would benefit from this plan, so I do have an agenda, but at least it isn’t a hidden agenda.
Technorati Tags: bailout, bottom-up bailout, financial crisis, stock market crash, credit freeze, mortgage crisis, financial bailout, real estate crash
September 30th, 2008 at 4:14 pm
I agree with the flaws you mention, and I add another.
Future generations will be saddled with this debt.
Who will pay the $700,000,000,000? With interest and overhead for this debt included, the total cost will come to something like one Trillion dollars.
It would be like the financial version of Iraq.
September 30th, 2008 at 6:17 pm
So, it’s okay for something to be a form of socialism if a specific group of people benefits from it? Socialism can (and should) be objected to on philosophical grounds, but also on practical grounds. Socialism doesn’t work. It’s that simple.
October 1st, 2008 at 2:51 pm
How about this, we know that the problem is that money is not flowing! So let do this Fix all the bad loans first second pay off debits up to 10K for all tax payers. Put it toward your mortgage or credit card debit.(no Cash) Also let’s fix the Credit card’s buy lowering the minimum payment on credit cards and stopping them from charging crazy fee’s. Now Let’s stop people that are not citizen’s of our country (the USA) from getting credit and homes in our country!
This will put money back in the system and pay off some debit’s and freeing up cash flow for all Americans.
October 8th, 2008 at 7:27 pm
Yes, Shawn. I think you’re echoing pretty much what I was saying. Glad I’m not the only one thinking this way.