Rattle The Fence Blog

 On this page I will pontificate my ideas of political and economic issues.  I am an American I have just as much of right to my opinions as you do. 

I am just right more often!  ;o)

A True Bailout Plan!
11-9 Economic Recovery Legislation
Debt Relief
A bailout solution to the United States Economic Situation

Background
The United States Government has decided that the United States free market Economy needs government intervention through bailout or stimulus funds. October 1, 2008, the US Congress in cooperation with the Bush Administration passed a $700 billion dollar bailout bill, Emergency Economic Stabilization Act of 2008, giving the Secretary of Treasury full discretion how those funds will be managed. Initially funds from the original legislation have been appropriated to some large failing financial institutions.

Since the National election, President-elect Obama has proposed that additional bailout funds and stimulus packages may be needed. Also, the big-3 U.S, Automakers have now requested bailout money for their corporations.

From the actions and conversations of the lawmakers and executives in Washington, D.C., It appears that everyone there has determined that the only way to stem the tide of the mounting major financial crisis here in the United States is for Government intervention and the influx of Federal Tax dollars into the free market.

Let us then address how to get this economic stimulus to the average American.

The Housing-Mortgage Crisis
Without pointing fingers, we all need to admit that a great deal of the banking industries current problems is that they were strongly encouraged to extend their normal banking procedures and offer less than secure loans and credit to American consumers. Many American consumers jumped at the credit opportunities and disregarded sound financial thought. Soon many found themselves holding more responsibility than they could handle. Families are finding themselves in increasingly homeless situations and filing bankruptcy and struggling to make ends meet.

Missed payments and foreclosures do not benefit the financial institutions either and a vicious circle is created, even to the point of impacting the job market, resale value of homes, and the retail industry.

Merely bailing out the banks and requesting them to continue to loan money, especially to risky consumers, does not impact the most people that it needs to, and leads us further down a path of personal and national debt.

The Needed $700 Billion Plan

Foregone Conclusions:

1. The United States Government is going to spend Billions (if not Trillions) of US taxpayer dollars to try to bailout economic problems and stimulate overall economy.
2. The banks and credit institutions need major help and will receive bailout money.
3. Irresponsible lending/borrowing is a major cause of the current economic problems.
4. The lender AND the borrower BOTH need economic help.
5. Regardless to whom gets the direct money from the Government, there are going to be some population groups left out of DIRECT impact from the government bailout and will be unhappy.

Facts:

1. There is approximately $12.2 trillion worth of “HOME” mortgages in the United States today.
2. The average mortgage is $185,300.
3. Not all mortgages are first mortgages of primary residences, but still have an effect on the overall economy.
4. A bailout of $700 billion could pay off approximately 5.7% of these mortgages.

The Plan (simplified):

1. Allocate $700 billion taxpayer dollars for Personal Debt Relief.
2. Every owner of a home mortgage shall be awarded 5 percent of their home mortgage balance of first, second, and second-second mortgage (see example below). On average, this would amount to $9265.
3. Mortgage holder will not be given cash directly, but can use the amount to pay off designated debt.
4. Money will go directly to lender and credited to mortgage holders account.
5. Owner can then defer payment on that debt for the time allocated (amount paid off/monthly payment), or choose to continue to pay monthly payments as usual.
6. Example:
   • 1st Mortgage Balance $210,000 @ 6% interest, $1,800/monthly payment
   • 2nd Mortgage Balance $45,000 @ 12% interest, $600/monthly payment
   • Total Mortgage Debt $255,000
   • Bailout Payment = 5% of $255,000 = $12,750
   • Owner decides to reduce 2nd mortgage to 32,250, and defer $600 monthly payment for 12 months.
7. Accomplishments (from example):
   1. Personal debt is reduced by $12,750.
   2. Personal monthly buying/saving ability is increased by $600/month. This is money that can get back into the economy, not just one annual check of $600/taxpayer stimulus.
   3. The ailing credit and lending institutions are getting a $700 billion bailout.
   4. A portion of this $700 billion will be returned to the government through reduced mortgage interest deduction on personal income taxes.
   5. More people are directly and quickly affected than just the executives of major lending institutions.

Administration of the Plan:
No new executive branch bureaucratic agency is needed. Let’s keep oversight and control as local as possible.
My proposal is:

1. Local oversight will be assigned to a small office of qualified staff chosen and controlled by State House of Representatives. Each State Representative will be responsible for the work within his legislative district (for example Colorado has 65 house districts). Oversight and accountability for these legislative offices shall then be under the US. Senators and Governor for each State.
2. All application for stimulus package can be accomplished via a simple one page form (see attached) or via a secured website (maintained by each State).
3. Funding for these offices will come from the $700 billion bailout funding. Because, 5% of $12.2 trillion is only $610 billion, leaving $90 billion for administration and wooden toy arrows and Puerto Rican Rum (I know that is more than enough for the little bit of work that needs to be done and ythere might be some money to fund Other Required Legislation #8 below).

Rules:

1. Ineligible to receive aid: Elected officials of the United States Government and State Governments. Those who caused the problem should pay and not benefit!
2. Demarcation Date: November 9, 2008. Any mortgages created after that date are not eligible.
3. Only one property (primary residence) may be claimed by claimant.
4. Only a first, a second and a second-second mortgage (all on the same property) can be used to calculate the 5 percent payment.
5. Only debt incurred prior to Demarcation Date can receive payment in this program.
6. Payment can only be parceled to a maximum of two creditors.
7. Fraud under this program shall not be tolerated and will be calculated by 1 year of prison (and hard labor, Leavenworth, Kansas) for every $10,000 defrauded. No exceptions. Oh, if we could get the Justice Department to cooperate.
8. This aid money is non-taxable.

Other Legislation Required:

1. All creditors will reduce interest rates to less than 10% APR of any existing credit agreements that exist of higher rates.Whatever happened to the usary laws?
2. All ARM’s and Balloon Mortgages shall be reduced to a fixed rate of less than 10%.
3. There shall be no finance fees charged for the conversion of these loans.
4. Banks shall return to responsible banking processes and taking on only risk that they are willing to cover with existing assets. Be smart!
5. Paid off personal debt accounts in this program shall be closed or credit limit reduced to a maximum of 2 percent of holder’s gross annual income. Let’s help some people stay out of a return to the same old mess.
6. Legislation shall be passed to eliminate the death tax. These people worked all their life to get what they got. It should be passed on to their heirs. It has been taxed once anyway.
7. Let’s eliminate or reduce the capital gains tax.
8. Let’s start funding our upper education, like the GI Bill, if you graduate with a degree, the government pays your student loans. Reward those who strive to get better.

Author’s Editorial: You know. It is not a perfect plan, but it comes from an average American (no,my names not Joe, and I am not a plumber), that has to balance his checkbook and pay his bills and feed his family. It sure beats any proposal I’ve seen come out of Washington DC.