To the surprise of very few who have been paying attention, the Wall Street bailout has had little positive effect on making credit available to businesses or individuals. The $350 Trillion in TARP funds already made available, plus the almost $1 Trillion in loans directly from the Federal Reserve, have only been used to replace capital already recognized as lost, or to buttress balance sheets in anticipation of the write-offs to come as the economy slides deeper into recession.
Also to the surprise of no one, every industry, trade group, union, state government, municipality, or anyone who knows a lobbyist has formed a long line in order to get “their share” of the bailout. And I continue to predict that the federal government will continue to write checks to every interest group possible before they do what I cynically believe they already know needs to be done: Make credit available directly to the American people and Small businesses via temporary government backing of basic credit facilities.
Since I wrote my first proposal, I have been trading e-mails with Peach Pundit regular and ControlCongress.com editor John Konop. We both share similar ideas about the need to drive the economy via consumer behavior. As such, we have worked to put together a plan to lubricate the wheels of the economy by making available sensible, properly leveraged credit.
An old axiom of government is that for every action, there is an equal and opposite over-reaction. This is the current situation in our credit market. Failure to regulate leverage has lead to a current environment where lenders expect to be over-regulated. Only customers with spotless credit are able to make purchases. Yet, due to the economic downturn, many people will have their credit blemished that may still have good jobs, down payments, and the ability going forward to repay loans.
There are many who share blame that got us into this mess. But we believe that the solution is in rewarding good future behavior. The blame game can continue until the end of time, but we must lay a foundation to get us back to a market-based, productive economy once again.
America’s economy is a credit based, leveraged one. We can not expect this to change over night and remain an economic super power. As such, we must return to the lessons learned in the wake of the great depression, which was largely caused by stocks being bought on margin without proper leverage: A borrower must have sufficient skin in the game, i.e. a proper down payment, if the lender has any chance to expect repayment. Thus, in this proposal, the borrower’s down payment of hard money is key to getting new loans. The other keys of credit include capacity, and income verification, an easy process that many lenders did away with during the last decade, is also prominent.
Credit scores, however, are not featured here. While credit scores made it too easy for many to borrow above their means in the past, we believe that they are likewise keeping many from being able to take loans now that they could afford to repay. Thus, if other conditions on these loan programs are met, past credit history is not part of this underwriting criteria.
The other key part of this plan is that it includes everyone. It is not a small, narrowly focused plan aimed only at those behind on their mortgage, or those who fit some nebulous definition that the government has decided should be a “winner”. Those that have played by the rules, and lived within their means, should be able to take advantage of any broad based stimulus package. To do otherwise would be punishing success and rewarding failure. That’s not the American way.
The plan includes the following parts:
Part #1—Home Refinancing: The federal government shall offer existing holders of federally-guaranteed mortgages (Fannie Mae, and Freddie Mac) the opportunity to refinance their primary residence at 4.0% on a 30 year or less fixed payment mortgage at 80% or less Loan-To-Value, or 4.5% up to 105% of home’s value. Any amount above 100% LTV can either be written down by 50% by the lender voluntarily, with the government guaranteeing an 8% second mortgage with a 10 year amortization to capitalize the remaining upside down balance, or the lender would have to subordinate it’s position to the government with a second (or third, in the case of an existing 2nd mortgage) position, with no guarantee, and an interest rate also capped at 8%.
The key to this plan being successful, and keeping people in their homes, would be to make these mortgages assumable. Based on the amount of money being pumped into the system, it is reasonable to expect that we will eventually turn from today’s deflationary environment into one of reasonably high inflation. As such, as 4 or 4.5% mortgage would provide significant value in an environment with even 6 or 7% interest rates, and would thus increase the value of homes that are considered to have negative equity today.
This plan should keep people in their homes, thus putting a floor under today’s low home prices. It would cut homeowner’s payments across the board, freeing up a massive amount of discretionary income to stimulate the economy. It would cleanse most toxic portfolios from banks’ balance sheets, and restore confidence in inter-bank lending. And given that these loans are currently implicitly backed by the Federal Government already, (and that the 30 year treasury is just above 3%), the additional cost to the taxpayer should be negligible.
These refinance loans would be made available to anyone who currently holds one of these mortgages, regardless of any other conditions.
Part #2—New home purchases: The federal government shall guarantee 80% of a new home mortgage if:
1) The mortgage is offered for 4.5% interest or less
2) The buyer is employed with a strong work history
3) The amount of the buyer’s monthly mortgage payment meets proper debt to income ratios
4) The buyer puts down 10% of the purchase price
5) The house meets all proper valuation checks
6) The borrower pays a 1 percent origination fee set in reserve against loses
7) Program available for refinance of non-government backed loans that do not qualify under Part 1
Similar to the refinance proposal in part one, and with many of the same benefits, this program has additional restrictions on qualification to ensure that we don’t repeat the cycle of the government mandating loans be given to individuals who cannot afford them, but does make it easier for those who have credit issues to re-enter home ownership if all other factors outside of credit history warrant.
Also, because of the proper Loan To Value requirements up front, there is no need to add the assumable feature to these “new” loans as an incentive to stay in a home with negative equity.
Part #3—New car loans: The federal government shall guarantee 80% of on a 7.5% or lower auto loans if:
1) The loan payment meets proper income to debt ratios
2) The loan term does not exceed 60 months
3) The borrower pays a 1 percent origination fee set in reserve against loses
4) The borrower makes a down payment of at least 10% of the purchase price
5) A 3% discount of the rate will be given if the car meets or exceeds 27.5 MPG (current CAFE standard) and SUV/Mini Vans meet 25 MPG or better (4.5% rate). And additional 1% will be given if the car is electric, diesel, or hybrid fueled vehicle (3.5% assuming the MPG hurdles are also met)
6) The maximum loan amount per vehicle will be two times the 2008 average transaction price, or approximately $47,000.
The low interest loans apply to consumers, businesses, and state and local governments and will encourage fuel efficiency, decrease reliance on foreign oil, reduce greenhouse gas emissions, stimulate the economy, fights inflation and support the auto industry.
Part #4 – SBA guarantees.
The equity requirements for all current SBA lending facilities will be immediately cut in half, so long as all SBA loans affected by this change still require a 10% minimum equity contribution.
These proposals should be temporary, but on the books long enough to give those still in financial difficulty, facing foreclosure, bankruptcy, or unemployment incentive to work through their personal financial issues, plan to start fresh with proper leverage and debt ratios, and maintain their optimism that the American Dream is still possible.
This is a direct financial solution to Main Street America. It represents the best of the American Spirit, where every taxpayer has the ability to receive some sort of direct benefit. Rather than giving money to “banks” or “industries”, it rewards average Americans. Most of the plans would have very little direct cost, and would provide benefits to the economy many times that.
The best way to get America working again is to invest in the American People. Let’s make it happen.
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This is some of the best economic and political writing I am seeing anywhere.
To me, the most important point of the discussion is talk of making ‘the’ solution a bi-Partisan effort. I said it before, it is my fervent hope that the many Legislators that read this are getting the ‘bi-Partisan” message.
I think it is a moot point now, we are going to see increased debt as part of the solution to our financial situation. If the dough is spent on infra-structure, and then sold abroad as US infrastructure bonds, we are not adding value to our Country and putting people to work?
If we drill, and drill fast, and do not sell the oil on the open market, but use it ourselves, won’t that help?
We have to concentrate on expense reduction in government, and making government smaller, I hope Obama is hearing that and not planning a huge increase in government. I can only shudder when I read the largest growth in employment seems to be in gov’t.
What of our trading partners in Beijing pegging the Chinese Yen to the dollar instead of a metals based buck? After globalization, I don’t think a metals based dollar is practical, why am I wrong?
Taft, I think letting the market free fall could be even worse. In a revolutionary sort of way. Isn’t this what Wolfowitz called for? Total collapse and re-build? Shock Doctrine type stuff?
I used to think my Lib pals were so wrong….
Icarus, you were right, it is clearly a drink early day…
“Konop, I feel like I’m talking to a wall.”
Have you ever tried talking to a Ronulan?
(Actually, you’ve apparently talked to too many of them).
I guess the AmWay comment hit a little too close to home this morning.
And now, we invoke the Icarus law, where any political blog thread will eventually devolve into a conversation about stupid and worthless paper money if a Ronulan appears.
The simple fact is this: If we adopt your solution of getting rid of fractional reserve banking and go back to the gold standard, we wouldn’t be measuring deflation by tenths of a percent, we would need a logarithmic scale.
And as a result, the people wouldn’t then turn to the smug less than three percent of you standing in the corner telling us it is the only interpretation of the consitution that matters. They would pull the country into either total collectivism or total facism, depending on which movement leader was more popular on that night’s episode of Entertainment Tonight.
I continue to be amused that the people who can find a conspiracy in everything, including our evil paper money, don’t see that they were set up into believing that their candidate’s online donations weren’t from potential voters, but from MoveOn/Kos Kids types that were screwing with a Republican primary.
As I’ve said many times before, until you guys can make any half-assed attempt at getting 50% of the vote, you will never, ever win an election.
We just had calls from elected officials to use the military to solve a friggin 10 day supply problem with gasoline, and you think the public will strengthen their support of the literal constitution if we blow up the banking system, medicare, social security, etc?
And I’m the one that’s a goof? Sheesh.
I’m all stocked up on my AmWay pal. Time to move along.
Taft
Banking, oil, energy, cars, electronic voting with no paper trail…
TP, I’m not calling for a market free fall — I’m calling for a market that is free to fall. To have government “prop it up” will only prolong, and deepen, the fall should it occur (see: Great Depression), instead of allowing it to correct itself quickly, as free markets do.
News, media, rock and roll, farming, orgami, pastrami, baloney, ham and cheese on rye…
thanks to taft republican for providing intelligent points to counter the incessant call for more of what got us into this mess in the first place.
Wow, Icarus, what a wonderfully cogent, intellectually insightful reply to what I wrote!
AmWay, Ronulans, conspiracy theories, MoveOn conspiracy theories (whoops!), “blowing up” the world, military takeovers if we revert to the Constitution… great stuff! You should write a book!
Fantasy land, my friend. Remove yourself from the Magic Kingdom, come back to reality!
Taft Republican
Your insults and lack of dealing with the issue only demonstrate that you would rather spew out talking points than solve any problem. If you think being an ideologue that pushes for Armageddon economic plan is best for our country than I cannot help you.
MY insults? You’re joking, right?
And I just spent nearly an hour writing a post that “deals with the issue” — your only response is to spew out name-callings like “Armageddon economic plan”???
Pot, meet kettle.
Taft Republican
Your comment never deals with all the loans, bank deposits, insurance that tax payers would be left holding. You also do not deal with the world wide depression you would force. You do not deal with mass amount of people being out of work.
As I said I was against the policies that got us in this mess. But unlike you I am not advocating Armageddon like you. It is time for grown up solutions not text book tirades.
Three Jack
You are a Ron Paul supporter?
What happened to the old limited government mantra: “We don’t need more laws we need to enforce the existing ones”?
konop, are you an obama supporter?
By the way, speaking of the real economy, Chrysler is about to furlow for a month in hopes that they can get a better deal from the next administration:
http://blogs.abcnews.com/moneybeat/2008/12/chrysler-to-tem.html
Although there is also a good chance that when they said they didn’t have the cash to operate until the end of the year … they really didn’t have the cash to operate until the end of the year.
It’s about the time of the month when auto makers start to release projections for montly sales. My guess is with the continued bad press, credit shock, and threat of potential BK filings, they are going to be very, very ugly.
Which, in turn, causes cash to burn.
You guys who are fans of centralization, and handouts for insiders and more regulations, without any attention to “rule of law” just google “investigation stopped”. I’ve always thought rule of law was the only way to straighten out this monstrosity. (common sense) Otherwise, you lay down with dogs you wake up with fleas. We’ve been ripped off to the tune of $ trillions. Kissing up to the political class is tantamount to going to Jeffrey Dahmer’s house for a pot luck dinner. No thanks.
Three Jack
YOU SAID
“thanks to taft republican for providing intelligent points to counter the incessant call for more of what got us into this mess in the first place”
Did you know that his plan and counter points are from Ron Paul!
konop, i have no idea who tr references, but agree with him that it would be insane to increase the involvement of the governemnt in the problem government created.
you advocate more of the same funded by taxpayers who cannot afford to keep funding failed policies of a massive, unchecked bureaucracy. that is the definition of insanity.
This isn’t to knock the plan. It’s as detailed and good as any I’ve reviewed. I disagree however that the plan includes everyone, and that those that have played by the rules and lived within their means will be able to take advantage of the plan.
There’s essentially nothing in the plan for homeowners that already have substantial equity in their home and a good mortgage rate, unless debt is significantly increased. Car loan-wise it’s a zero except to direct the type of car purchase as directed by the government instead of the market.
Jace, Taft, Game, 3Jack, Ramblin, and Tea
You have nailed it throughout this thread.
These guys have signed on to a generous portion of “hair of the dog that bit solution.”
The people of this nation are owed JUSTICE for the crime of treason that has been perpetrated by the NY banksters, Wall Street, and their enablers in the past 2 administrations. Icarus wants none of this, but these crimes against us all – and the creation of Synthetic CDO’s and the Chris Cox COVER UP of naked short selling failure to delivers – are indeed crimes for which no financial punishment is sufficient. Maximum jail terms must be meted out and some of these folks need to be executed, maybe even a lot of them.
This whole calamity is coming down and there is nothing that can be done to stop it. The DC FOOLS and CROOKS used and abused Keynesian stimulus to the point that it will no longer work.Shortky after the Bush gang and Saxby passed Medicare D (a bigger social program than the Dems had in 3 decades in power) took office – yours truly repeatedly pointed out that the average American family of 4 owed $75,000 of the official debt of the USA with total obligations averaging $600,000. Given an average family PRETAX income of less than $75,000, there was NO WAY IN HELL to make that work.
Those numbers now have DOUBLED and that does not take into account another doubling of the debt by nationalizing the GSE’s. So ONE ADMINISTRATION, the OFFICIAL DEBT HAS TRIPLED. Just today it was said that spending outside of the $700 billion TARP is up 25%!!!!!!
Add to these numbers another $8 trillion in the alphabet soup of Fed bailouts and you quickly see that there is no escape for the USA.
These idiots will destroy the $US with hyperinflation or by default.
The government will never be able to extricate itself from ownership of firms that it nationalizes. The DEBT service makes it impossible.
Someone needs to figure out how to effectively pick up the pieces, because Obama is going to complete the $US dollar destruction by giving Bernanke the missing tool – distribution to households – that makes his helicopter drop complete. And here you have well intended folks aboard the Obama/Saxby/Bush/Wall Street CROOK express.
For the last 3 years I have recommended Wiggin and Bonner’s Empire of Debt:The Rise of an Epic Financial Crisis which foretold this disaster. Now we have all of the debt in all US sectors being added to the already unsustainable US debt.
If we could not service the existing debt with the greatest boom period in history, how pray tell are we going to service many multiples MORE DEBT to pay for these bail-outs?
The political economy of Icarus/Saxby/Obama/Chris Cox/ Bush has lead to ruin, now they want to wipe out the folks who have actually been responsible in their lives……The bailouts have GUARANTEED Warren Buffett and the SWF’s of the oil states 9% interest on their cash injections into Wall Street and GE, but frugal savers in this country are seeing interest on their savings lowered to ZERO.
Like Jace, it is becoming increasingly difficult to be anything other than contemptuous of Republicans who claimed the mantle of fiscal conservatism only to destroy the USA in a wave of mad profligacy, the likes of which the world has never seen.
If the USA cannot deal brutally with the perps, like Madoff, then trust is NEVER going to return to the system. Trust is never going to return to world money systems until the ability of gutless, lying crooked bastard politicians to create infinity “money” out of thin air is ended.
The Era of Keynesian nuttiness finally gave the patient a fatal overdose.
Not even Dr. Kevorkian would be proud, but he seems to have a legion of political and financial disciples.
About the only thing that seems to have commonality is that the $trillions of capital infusions into (paying bonuses) the very firms that caused this mess is not helping the average American one whit, just the fraudsters.
That is EXACTLY what Saxby voted for throughout his last term, yet these idiots put him back in office.
Dave,
Can’t totally argue with your observation. Those that get the most direct benefit are people who have borrowed or need to borrow money. I think most taxpayers will fall into that category.
Those that are as you’ve described, however, would stand the best chance to have the equity in their homes protected, and their future tax liabilities to remain low, to have the government act in a way that minimizes their future net expense.
As I believe I mentioned above, the numbers I calculated, with the government financing 50% of all cars sold (7 Million a year, cash sales and leases making up the balance), the government making no money off the deposits placed with lenders, and a 2% loss on top of the 1% in reserve (about double industry standards), The government would spend $9 Billion to support this program for 24 months. We’re about to write a bigger check just to cash flow GM and Chrysler for 60 days. 60 days during which most of their factories won’t even be producing cars.
So, I have to go back to the central point. John and I are trying to find an alternative that gets the lobbyists out of line for their share of the bailout, that doesn’t reward only the biggest banks or large multi-nationals, that can put a direct benefit into the hands of most Americans, and has the best cost/benefit ratio for the taxpayer.
This plan isn’t perfect or ideal. But I haven’t seen one better that is either more fair, or more cost effective. If anyone has any other ideas, feel free to share. Either starting from scratch, or tweaks to this one.
Where is the bailout for the frugal worker with a 401(k) who THOUGHT he was being wise and avoiding the stock market crash by moving his allocation to the “safe”, “guaranteed”, or “stable” investment option only to find that it is chock full of worthless CDO’s?
The 401(k) scam was designed to deliver the average American into the clutches of a Wall Street that is 100% corrupt.
The UAW pensions are guaranteed, but those with no pensions are SOL with nobody wanting to bail THEM out.
This is why bailouts are so damnable. There is no equitable way to make them work so that the slothful are not rewarded while the frugal get their teeth kicked in.
God, Icarus, it’s downright scary when you channel Ted Kennedy like that. He’s not even fully dead yet.
“Did you know that his plan and counter points are from Ron Paul!”
Konop, the only reason you would say something like that would be because you must have never read an economics book in your life. My “plan and counter points” are no more from Ron Paul, than his “plan and counter points” are from ME. All of this is basic, simple, easily-understandable free-market economics — easily-understandable, that is, if you haven’t been infected with the Keynesian diseases being spread on today’s college campuses.
I would be happy to recommend a reading list on sound economics, if you are so inclined to such an education. In fact, by starting with one simple book — Economics in One Lesson, by Henry Hazlett — you will be light-years ahead of government economists, Wall Street wizards, Democratic interventionists, and your e-mail buddy.
A mind is a terrible thing to waste.
Dave Bearse
The current homeowner with equity would get a rate reduction ie lower payment. And that part of the stimulus would not cost tax payers a dime. Finally the 1% reserve would cover the risk because the home owners would already have a good portion of equity in the home.
Taft Republican
I live and work in the real world. You can talk theory, but I apply what you think you know everyday running a financial service company.
If you ever had to apply the concepts you would find out that the real world does not play out like a book.
In the real world when you take over a failing business you learn how to fix things while the plan is flying. Because as in this situation landing the plan cause more damage than fixing it while it is flying.
Blowing it all up and starting over is the easy and irresponsible way out. Fixing the problem with the least amount of causalities takes skills.
IndyInjun
I never said this plan was the end all of all plans. Yet you are smart enough to know the controls in this plan via risk are not even close to what got us into the mess. And had the controls been in place the debt market would be in the same shape it is now.
Also if we do not fix the valuation issue the economy will collapse. That is why an 80% guarantee with 10% down and 1% up-front reserve is a conservative idea via risk. This would plug the falling valuations because investors would have confidence on the floor. Also freeing up responsible lending (increase sales) would stop the free-fall in the job market which would bring confidence back into the economy.
I am not trained on the mechanics of finance and accounting as well as you. In fact I have a CFO who does the heavy lifting on the financial side. Yet I am the deal maker (CEO) and anyone in my position will tell you raising debt and equity is very tough because of the lack of trust in valuations and the economy.
And this will be a tough falling spiral felt be many unless we fix the problem. I was one of the first tell yell about the lack of controls but now it has swung too hard the other way. All I am trying to find a responsible balance.
And finally as you know the government (tax payers) is on the hook anyways for most of the toxic lending. If we do not fix this problem you know what the result will be.
My plan
1) Recall All of Congress – it is their bad judgement that screwed us all.
2) Draw names to replace Congress – can’t be any worst than what we have.
3) Set term limits to reduce power.
4) Limit the power of the federal government, like it was intended to be.
Now let me vent a little.
We own a body shop.
People have car insurance to repair their car incase of an accident.
If there is a lien on your car, you MUST fix the car to pre-accident condition.
In the past, Insurance companies would write 2 party checks to insure the car was fixed but they have gotten out of the habit in the past few years. Now they write checks directly to the owner, even when the car has a lien. The checks are always much lower than the actual repair cost so if the person takes the money and runs, the ins. company saves money. This is happening all the time now. People think of these checks as free money.
Problem is, collision centers are going under everywhere. Small businesses closing down and insurance companies making out like bandits b/c they are only paying a third of what they’d actually owe. This is wrong.
We had someone drop off a car to be repaired. $7500 in damage. The insurance company sent him the entire check. He cashed it and went default on he loan. So the lien holder had to pay us before they could repo it. Now they not only have to sue him for his loan but for the repairs too and he has $7500 to spend while he is filing for Bankruptcy.
Sorry to be so pissy this morning.
Kidding.
EXACTLY!
JK – I’m at about 50% equity (that factoring in a 15% loss in value since mid-2006) with 10 years to go on a 4.9% loan. The time, effort and expense of a new 4% loan are hardly worthwhile. (What about an even lower rate for shorter term?) See below.
JK, Icarus – Is there anyting in the plan to discourage a continuation of excessive investment in homes, which I think has contributed to the mess, i.e. people foregoing savings/investment disversificaiton to buy too much home? Making the loans transferrable while simultaneously citing much higher future inflation encourages excessive borrowing of cheap money for more home that is needed—hair of the dog that bit ‘ya. The name of the game is indeed stimulus, but tying up excessive capital locks into non-productivity.
Carrot and stick work best overall. There’s no stick in the plan—it relies on the precept of forgiveness and doing right going forward. Frankly however, I don’t know what to suggest for a stick.
Dave,
Each person is limited to one home that is their primary residence. (Or at least one loan backed by the fed). On new purchases (Part II), there are strict debt to income ratios. While not posted above, we both believe there should be a 28% front ratio (maximum amount of gross income available for the house payment) and a back ratio (total amount of debt payments) between 36-40 percent.
It was the elimination of these two main requirements, along with 100% financing, that allowed the people who formerly couldn’t buy one house to buy several, any one of which they probably couldn’t afford.
And only the loans that are currently backed by Fannie Mae or Freddie Mac are transferable. We didn’t put it in the plan, but most likely the new purchaser would have to qualify under the Part II underwriting guidelines to minimize losses from future homeowners.
Thus, there is no incentive to buy more house than one could afford based on assumability, because the new purchase loans aren’t assumable. The assumability is only added to part one as an incentive for those who have no or negative equity in their homes to stick with their payments, with the hope that their home will appreciate in the future.
Icarus,
I apologize for the tardy reply. First I am not advocating any solution that proposes more regulation. Like your sugestions at the federal level I want to unclench the fist of the regs to move the credit markets.
You asked about the budget and it works like this in the overall. Rather than a percentage of the previous year; the governor sets the revenue estimate on the advice of his economist or his committee of such. They have the ability to set it low medium or high. This year I assume it will be in the range of 18.9 billion down from 21 billion. There is great leeway for the executive branch in this process. The state can budget only up to the amount of the estimate and it must be balanced. So it says
Your second question was the reserve fund. This can be up to ten percent. We have a balance of 1 billion now which is 5.37 percent. The first 1% can be appropriated for the mid year education adjustment and anything over 4 by the gov. However he has to put it on the table. The general assembly cannot access the reserve.
Dave Bearse
I was using a macro of around 6% for people on fixed loans who have decent amount of equity. You are right the numbers can be adjusted on multiple factors via equity, income to debt ratios and job history.
I am sure an actuary could help tighten up the numbers. This plan is a macro start that does need strong financial people to adjust the exact ratios. Yet I do think on a macro level the numbers are fairly close.
eehrhart
In all due respect we got into this mess by not having proper regulation on government backed loans….
I am all for deregulation on a private lending deal as long it has full disclosure and it is not fraud. Yet if you put tax payer money at risk I am for a long list of controls.
The reason we have had very little issues with SBA loans is via the controls. And no one can argue that SBA has not been a great program for our country.
Konop, your type of “concepts” have been “applied” in your “real world,” and they have INDEED “played out like a book” — if the book is called How To Destroy The American Economy In Just A Few Easy Steps.
Just keep applying your concepts, Konop. Keep doing and recommending the same crap that has been foisted upon us for so long. Don’t bother to learn about actual principles of how free markets really do work if interventionists like you, Bush and Obama would keep your grubby little government paws off of it.
Konop, with all due respect, we got into this mess by having “government backed loans” in the first stinkin’ place. So you see, what you’re proposing really IS just more of the same crap.
Rep Ehrhart,
Thanks for the clarification. The thoughts I was already working on are along the lines of some additional extra current spending via bonds, similar to what the governor has proposed, in exchange for a slightly smaller annual budget percentage as a baseline budget, and a larger reserve fund to get us out of these expansion/budget slashing cycles.
Will continue to put some thought into more specific micro-economic policies that may work at the state level, as well.
With regards to regulation, my view is that if public money is involved, then appropriate regulation and transparancy are required. If not public money is involved, little or no regulation should be, either.
What you stated above isn’t necessarily inconsistant with that, and I think that’s what John was trying to clarify.
But UMustBeKidding has a post a few places up (8:54am) where it indicates that more regulation may actually be required. It appears that the insurance companies have changed policies whereby they have a wink wink, nod nod arrangement with their policy holders in that they can now under budget for repairs, get the customer to agree, write the check directly to the consumer, consumer skips, and the body shop (small business) and lien holder (small or big business) get left holding the bag.
John Konop,
I do have a pretty good idea of where this thing is headed as you and I both have agreed ever since I came to PP.
The problem is multi-faceted and goes beyond the mortgage mess and home prices. I do not believe the problem is solveable by more debt, especially with the entitlement crunch that begins in 2012.
Obama will immediately head in the general direction as your plan, but will spend even more. The missing element was always one of distribution and you, Icarus, and Obama aim to solve that problem.
There are two choices, debt default including the US government or currency collapse via the $trillions being created from nothing on top of unsustainable debt.
One or the other of these things is going to happen.
Everyone wishes to delay the day of reckioning, but we are just putting off the day that the USA reforms itself and its economy.
What has gone on is the greatest theft in the history of the world. History says there will be much pain, even bloodshed.
There is not one PPunditeer that I would not trust to get us to the other side more than I would the 2 miserable US Senators from Georgia. They are the problem.
All over the place, the people that created this mess are being entrusted with $trillions to get us out and that ain’t gonna work.
When they tried to bailout the derivative level debt, that spelled doom.
We have to put our best efforts toward picking up the pieces by everyone pitching in.
The index case was LTCM in 1998, but both parties had their hand in covering it up until it meant the end of the world as we know it financially.
Earl:
Georgia does not need to borrow money to provide stimulus, due to the $20 billion unfunded liability for employee health insurance.
Neither of the candidates for my senate district were willing confront this debt.
To borrow more without some sort of compromise is to make exactly the same mistake as the Federal government.Kicking the can down the road is the root of Georgia’s problem, just as it is the Fed’s.
“Everyone wishes to delay the day of reckoning, but we are just putting off the day that the USA reforms itself and its economy.”
Watch out, Indy, Konop interprets statements like that as, “Blowing it all up and starting over.”
I think it might be his glasses or something.
“There are two choices, debt default including the US government or currency collapse via the $trillions being created from nothing on top of unsustainable debt.”
With all due respect, Indy, those are not the only two choices. I’m afraid you’ve let the bitterness over the way our country has been run cloud your judgment in realizing that the american people are a resourceful and resilent people.
As such, this program is not meant as a default, it is a restructuring.
The debt refinanced under Part 1 is already an obligation of the taxpayer. This plan provides a better chance that it will be paid by the individual homeowners, not by the federal treasury (us). The debt under Part II is new debt, but when viewed in the context of $2 Trillion already lost in housing values, I think it still meets the standards of a cost/benefit analysis. More importantly, this is amortizing debt. It would not be a permanent addition to the national debt, as a $1 Trillion pork package would. Part III has a net cost to the taxpayer of $9 Billion, less than what we’re about to give the industry to prop it up through the Christmas holdiays. Again, that cost versus the cost to the taxpayer of losing our principal manufacturing base seems to pass cost/benefit to me. Frankly, I have no idea of the costs of part IV, but I think it’s the least invasive of the suggestions anyway.
In addition, regardless whether it is this plan or someother “mother of all stimulous plans” that gets passed, I would hope that those who value fiscal responsibility would add a few kickers that seem painless now, but would cause embarassment when either party attempts to repeal them in the future. Something along the lines of Graham Rudman, A balanced budget amendment, or a 3/4 vote to increase the debt ceiling.
The fiscal conservatives have lost this round to a certain extent. The best option here, is to minimize the costs of the “solution”, and try to extract concessions now on future congresses ability to write bigger checks.
Taft – At this point, blowing it all up and starting over isn’t a bad idea.
Indy
You are right we need to deal with other issues like entitlements, heath-care….. In fact Paul O Neil wrote a very good book (Price of Loyalty) about how he joined the Bush administration to tackle some of the issues and his frustration on how the money was wasted.
This proposal is for only unfreezing the credit market for people who can afford the payments. And the plan helps with creating stimulus to the economy without adding out of control spending.
And I will make it clear this plan only softens the blow it will not stop the belt tighten needed. I do respect your knowledge and think you could add much to help with softening the landing.
And I do think we can meet in the middle between cold turkey economics and a gradual landing.
And you know as well as I people on this blog who advocate cold turkey do not understand the impact of what they are requesting. I do not need a smart numbers guy like to tell me what it looks like.
Once again in business I deal with this issue on a micro level. As I said anyone can cut expenses and drive the business in the ground and hope it re-builds. All I am saying is why not cut back and still but some fuel in the pump.
And you know as well as I the gamble is not much and is a conservative bet . We both know tax payers are on the hook anyways.
What I read here on the Mainstreet Bailout and Andre’s bit caused me to make these items ‘table topics’ at a recent event. The observations I witnessed were as chilling as the topics themselves.
Those present, a typically 28-42, ‘young turks’ business group met in Buckhead, end of year ‘meet ‘n greet’. Virtually everyone in the room has firsthand knowledge of the economy through their business. Point is, not a single person had any idea of any of what y’all have been discussing.
In other words, “this is just a bad time, but we’ll get through it just fine” was the opinion. If felt that if I pushed these topics much at all, I would be looked upon as the guy that put the ‘turd in the punchbowl’.
So hear we have a group of young, professionals, pretty high level folks, that either chose not to discuss the gravitas of our economic situation or don’t understand it. Who can blame them, their entire lives were spent in booming times?
Yesterday, I listened to Dr. Paul and that creepy music, I cannot help to envision a broken, debtor Police State of impoverished pensioners enduring humiliating bombings within our own borders by 2020.
I remain hopeful that this will not be the case, that reasoned minds working together shall create solutions that really work to these grave issues.
Thanks Taft Republican, great link to Basic Econ 101. Let’s not create solutions that offer temporary successful results at the expense of an unsustainable future debt service level.
“Let’s not create solutions that offer temporary successful results at the expense of an unsustainable future debt service level.”
Absolutely and totally agree.
I’ll point out again that all of the debt here is amortizing. Not the balloon payment/rollover type that composes our national debt.
Furthermore, when compared to the other alternatives on the table, either by spending an extra trillion, or by having a tax holiday for a couple of months, this plan is much more results oriented, and has both a lower carrying cost and results in significantly less addition to the national debt.
As for the cost of doing nothing, I remember the howls raised here from many camps when Isakson proposed spending $14 Billion to stimulate the purchase of vacant and/or foreclosed homes in order to stem the foreclosure tide. That was $2 Trillion in home equity ago, and we’re still on the way down.
I again appreciate your frequent comments about remaining optimistic. Focusing only on the negative will only generate negative results. We have to hope for better, and we have to plan for better, in order for things to get better.
As for the guys at the event you attended, I’m curious as to what profession most are in. I’m guessing if they are medical, IT, government, or healthcare, it’s easy to have that outlook. Luckily, there are some sectors of the economy out there that aren’t taking the full brunt, and hopefully, won’t be.
I’m also guessing that these guys aren’t in real estate, banking, manufacturing, or retail. Hanging out with that crowd is down right depressing these days.
As I mentioned here in the past, my work in commercial real estate brokerage. The crowd was primarily a brokerage, real estate attorney, and lending group.
Most commercial brokers have assimilated the news that is now mainstream from as early as last year. You saw the indicators, bigger companies cutting back, subleases hitting the market.
So basically, the message from the TOP ATL investment real estate folks is that newer loans will be made with more owner equity, on projects that are truly unique. Like the GM plant in DeKalb. We will see colleratalized mortgage backed securities with much higher underwriting standards. But the commercial sector did not do much ’sub prime’ lending. Yet commercial is going to be off as a result of the general economy.
Except for Buckhead, the ATL market is not overbuilt in the office sector. Buckhead is adding 2MM SF, and only uses 500K SF every year…
We are looking at more ‘correction’ and values are out there. The folks selling now, have to sell, to re-position assets. The folks that are buying are contrarian cash end users.
PP is one of the better blogs, really brilliant minds {humbling} at work… thanks for the recognition.
I’m a bit surprised that that group would have a “meh” reaction to the current economic climate. I’m not sure if that’s a good thing, or if they haven’t gotten the message yet. If it was mostly an in-town focused group, I’ll agree, commerical hasn’t seen that much of a dip, and the office vacancy rates have been projected for years.
When you get outside the perimeter, where the commerical RE is mostly retail, and where there were few constraints on supply over the last decade, I think both the owners and bankers are singing a little different tune.
Either way, at least they’re able to enjoy the holidays. I hope most PP readers are able too as well.
To all you howlers opposing the Icky/Konop plan. I believe it was Icky that said Congress didn’t know what to do but was going to do something/anything and will pass something/anything with the name bailout.
Take your time, digest it and while you are about it, take a moment and read at Politico.com “Reid preps $850 billion stimulus.” Go to the jump and gander at Ried’s chief of staff, Gary Myrick’s memo. Read some of the comments, those commenting are smelling money, your money and a free ride.
So, choose your poison wisely.
$850 billion? So what? It’s all checkbook money – you don’t even have to print it any more. Push of a button, click of a mouse, create another $850 billion, and everyone’s richer!
Right?
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