By Joshua Holland, AlterNet. Posted September 28, 2008.
It would keep families in their homes and loosen credit markets without rewarding Wall Street’s wheeler-dealers for their recklessness.
Welcome to America. It’s campaign season, and the financial sector is melting down in front of our eyes. Congress’ hair is on fire, and it’s poised to pass one of the worst taxpayer rip-offs in history.
In the midst of the craziness, Barack Obama is offering up rhetorical cotton candy. “This plan cannot be a welfare program for Wall Street executives,” he said. An independent board should be established to “provide oversight and accountability at every step of the way.” We shouldn’t use the money “to pad CEOs’ salaries or allow them to walk away with golden parachutes,” he said.
October 1st, 2008 at 3:51 am
If the problem is the value of homes in America why doesn’t the government eliminate the capital gains tax on home owners. This would immediately raise the value of the assets securing these bad loans. I am an American living in England. We do not have capital gains tax on our primary residence. Also, we are allowed a $25,000/year per person (no penalty for married couples) tax free allowance on investment property. My husband and I owned a rental property for 5 years in England and made $200,000. with no tax liability. We also had no capital gains tax to pay on our primary residence when we sold it even though it had tripled in value. All this and we have national health insurance
October 3rd, 2008 at 9:04 pm
Agreed, The “supply side” solutions for this crisis are not succeeding in it’s efforts to return confidence to the markets.
Examples of such failures to restore stability to the markets are the bailouts of Indy Mac, Bear Sterns, Freddie Mac & Fanny Mae, AIG, et al.
Now consider that there was a general consensus that the “Economic Stimulus
Program” that gave 600 bucks to everyone who files a tax return had a short term economic benefit. Some in congress are calling for another program to give more money to the taxpayers. This is called “demand side” economics.
Since the results of the last 8 years of the Bush Doctrine of Supply Side Economics is self evident it seems reasonable to change strategy. The bail out of Wall Street is a supply side solution which will assuredly fail where as the one example of demand side economics demonstrated a degree of success. This then begs the question…What ” Demand Side” Economic Bail Out strategy will restore market confidence?
Submitted for your consideration:
**THE BI-PARTISAN PROPOSAL:
*Federally insure the underlying sub-prime mortgages using Federal Reserve monies to pay for any defaults and then charge forward all incurred expenses to the financial institutions that initially bundled the securities for market.
Worse case scenario based on an 11% default rate- the total cost
would reach approx. $77billion charged to the appropriate financial institutions.
*Who wins and who losses with this deal?
*The Taxpayers-
WINS **THE BI-PARTISAN PROPOSAL
Not stuck with paying for something they want no part in.
*Wall Street financial industry-
WINS **THE BI-PARTISAN PROPOSAL
They receive 100 cents on the dollar (or more - because: since the underlying sub-prime mortgages are guaranteed by the United States government the securities are an investment as safe as T-Bills) for their securities and are not nationalized by the U.S. Gov.
*The Homeowner with the sub-prime mortgage-
WINS **THE BI-PARTISAN PROPOSAL
They get to keep their home.
*The U.S. Government-
WINS **THE BI-PARTISAN PROPOSAL
Does not turn into a Socialist State overnight.
*The world financial systems-
WINS **THE BI-PARTISAN PROPOSAL
Confidence in the world markets are restored.
IN SUMMARY:
The Bi-partisan Proposal…
WIN/WIN/WIN/WIN/WIN
October 10th, 2008 at 3:06 pm
We need to bail out the American people, not wall street. The fat cats on wall street, politicians, etc., were/are wreckless and irresponsible, not to mention greedy. They are in no way worried about the American people - they want us, the taxpayers who are suffering, to bail them out but where were/are they while we are struggling? Certainly not here to help us. Our own government doesn’t want to help us, they want to help the fat cats on wall street, people who can help them in the long run. They don’t seem to remember, we put them in office and we can refuse to do that again. I believe that instead of giving wall street, rich ceo’s, etc., this bail out money, they should give it to middle and lower class Americans, those of us who make below $100,000. in the country are basically ignored and forgotten about. By giving each ‘household’ somewhere between $200,000 and $500,000. (rather than the measly $300-$1200. handed out!) They would have to deposit the money (now it would be in the banks); we could pay off our house (money to another bank); our cars (money to 2 more banks); our credit cards (money to other banks, corporations); pay doctor and hospital bills (money into the economy); pay every single dime we owe (money into businesses, banks, etc.) That money would immediately be making its way through the system, it would be in banks, and working its way through quickly. We wouldn’t have to wait months and hope this works. Even if people didn’t pay off their bills, etc., they would still have to put it in the bank (not many check cashing stores have that kind of money laying around); and say the first thing they did was go on a shopping spree, they would (1) have to have a checking account to cash the check or leave the money in and (2) spending the money would put it back in the system and the place they spent the money could pay their employees, put the money in the bank, etc., If people didn’t spend it on paying off bills (their home, cars, credit cards, etc.) then when they come crying they are losing their homes, etc., then that would just be their own problem. We, the middle/lower class needs help, we didn’t get the greedy incompitent and dishonest banks, fat cats, politicians, etc. into trouble, we should not get them out. They have though gotten us regular people who try to pay their bills and do the right thing into trouble and they won’t even consider helping us! That is totally unacceptable to me. If you are not willing to lend me a hand when you are able, then don’t expect or require me to bail you out when I am unable. I am 49 years old and draw only $759 a month on disability. I have to get a job (although I am still disabled) just to try to live day to day! I would like to see some of these rich bankers, politicians, etc. live on what we do! They would be crying before the first week was over. Why does nobody think the opinions/ideas of regular americans are worth listening to? We do have just as good and obviously better ideas than most of those representing us do.
October 14th, 2008 at 9:11 pm
flawless logic…
October 31st, 2008 at 9:56 am
Recently I had a chance to check with a bankruptcy attorney my theory for helping folks stay in their homes through one small change in the bankruptcy rules. The attorney completely agreed with me.
My theory is that the exclusion of the primary residence from bankruptcy judge’s authority to order banks to re-negotiate loans should be eliminated. This would give every single homeowner - not speculators - the leverage to push the bank to re-structure their mortgages - not just those already in bankruptcy. Currently a single homeowner has no real power to push a reluctant lender to re-structure a loan. Not even in cases where the house is worth thousands less than the mortgage, or where the interest rate increase is pushing the monthly payment too high for the homeowner to keep up. If a homeowner could in negotiation with the bank say, negotiate with me now or do it under court order from a bankruptcy judge, then we would see reluctancy eliminated.
What impact this may have on the economy as a whole? I don’t know. I am not an economist. What impact this may have on banks? I don’t care. I am a borrower, not a lender. However, I believe that fewer homes would be foreclosed if the loan can be re-negotiated. Reduction in foreclosures could put the breaks on diving home values. Therefore, this could preserve the value people have in their homes, their main investment. This single change in a bankruptcy rule could very likely help banks as well, since property values could go up, and fewer homeowners will have the incentive of simply abandoning the property because it no longer holds value to continue paying the mortgage.
The only thing keeping this rule out is the greedy bankers. Bankruptcy court judges already have authority to order re-negotiation on loans involving a second house - but exclude the primary residence from that authority. Now, what sense does that make? And if the reasons for giving a judge such authority in the case of a second house are good ones - giving a borrower a chance to keep the property and a lender a chance to actually get paid - why wouldn’t that reasoning extend to the house where the lender lives. The house where the lender lives is much more worthy of such treatment - I say.
November 9th, 2008 at 4:42 pm
I was just about to post the same flawless logic when I happend to read Deeanns post.
THis is what main street needs to force obama to do. This is what this site should be doing. Be very careful that the strings are being pulled to
divert actions from what is needed to be done and pushed for.