During the last few days I have been party to many different conversations about our financial predicament. Personally, I don't want my tax dollars to be used without thought although I do see the logic of a government bail out. This evening I received the following proposal by Dave Ramsey via a friend and fellow realtor. This proposal is very close to the conclusions that many of us have been coming to in our discussions.
The Common Sense Fix
Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three-step Common Sense Plan.
I. INSURANCE
a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
b. In order for a company to accept the government-backed insurance, they must do two things:
1.Rewrite any mortgage that is more than 3 months delilnquent to a 6% fixed rate mortgage.
a. Roll all back payments wiith no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borroweer will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while working with the borrower - again limiting foreclosures and ruined lives.
2. Cancel ALL Golden Parachutes of existing and future CEO's and executive team members as long as the company holds these government-insured bonds/mortgages. THis keep underperforming executives from being paid when they don't do their jobs.
**This backstop will cost less than $50 billion - a small fraction of the current proposal.
II. MARK TO MARKET
a. Remove mark to market accounting rules for two years on only subpriime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
b. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks - and it cost the taxpayer nothing.
III. CAPITAL GAINS TAX
a. Remove the capital gains tax completely. INvestors will flood the real estate and stock market in search of tax-free profits, creating tremendous - and immediate - liquidity in the markets. Again, this costs the taxpayer nothing.
b. This move will be seen as a lighning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down.
--I think Dave Ramsey covers most of what I've been talking about with others the last few days; what do you think?
