Don’t we all know that the bailout plan failed at first because the public is disgusted and would rather take a short-term financial downturn themselves than reward the powerful 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 government 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 home mortgages purchased between certain dates, (let’s say 2000 when real estate prices started going crazy and 2006, when they really started crashing). That’s it. It’s that 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 then if you bought a home for $200K, the Bailout Commission writes a check for $20K that gets applied directly to your mortgage. You paid $500K, your mortgage holder gets a check for $50K, etc… 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 without making the same mistakes).
In the meantime, you’re happy, right? You may not have gotten a bunch of cash to spend but your mortgage is much lower. If you bought during those years you’re probably still under water, but not drowning as much as before. So you’ll still have to take some punches, but it will surely soften the blow. You’re less likely to default and file for foreclosure and you feel more hopeful.
Wait, before everybody starts ripping the idea to shreds, I’ll write some of the potential objections that come to mind:
1. 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.
2. But it’s not fair! What about all the people who bought homes before the year 2000? – Come on… give me a break! You’ve enjoyed six years of super-low interest rates and hyper-appreciation. And now, on top of that, you want the 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 stupid. You don’t deserve a break.
3. What? It’s too complicated. How do we decide who gets how much? – We may need to figure out and come up with some formulas, but I actually think it will be fairly simple. It’s just a flat percentage of the purchase price of the home right across the board.
So what other flaws do you see with this bailout 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.
