Is the Bottom-Up Bailout Solution a Good Rescue Plan?
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 figure out a way of getting cash back into the credit market in a fashion that is quick and fair to the public. So, 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.
Well, I realize it isn’t that simple, and I anticipate some of the issues below to factor in, but first, let’s see 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 content, right? You may not have received cash to spend but your mortgage is reduced significantly. If you bought a home during those years you’re probably still in the red, but not as much as before. So you’ll still have to take some hits, but it will definitely soften the blow. You’re less likely to foreclose and you feel more hopeful for the future.
OK, before everybody starts tearing the idea apart, I’ll point out some of the potential objections:
1. Oh no! It’s Socialism! – Yes, I guess it is. And there will definitely be some people who will object to it on that level. But somehow I believe those objections will come from those who don’t benefit from the rescue plan. I have a feeling the 40 million or so families who get those mortgage reductions will be able to live with it.
2. That’s not right… It’s not fair! What about all the people who bought homes before 2000? – Are you serious? You’ve enjoyed 6 years of super-low interest rates and hyper-appreciation. And now you want this mortgage reduction payment as well? In the name of fairness? Please. And as for those of you who bought a home after 2006 when the market was already going down, well, I’m sorry, but that was just not too bright. You don’t deserve a break.
3. I don’t get it… It’s too complicated. How do we figure out who gets how much? – We may need to come up with some fancy formulas, but I actually think it will be pretty straightforward. It’s just a flat percentage of the purchase price of the home across the board for everyone.
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.
In the interest of full disclosure, I should divulge that I am among those who would benefit from this type of plan, so I do have an agenda, but at least it isn’t a hidden agenda.
Filed under: Current Events