We will see if this recent stimulus package and second round of the bailout money to shore up the banking institutions will have some oversight to make sure that the money will be used as intended.
Post your thoughts and comments.
I have to say, I’m less than impressed with the way the $700 billion bailout has been handled. Didn’t this whole mess start with a complete failure of the mortgage industry due to its prolific writing of really bad loans to people who they knew couldn’t possibly pay them back? And when those loans (many of them interest only) adjusted, wasn’t it the mortgage industry that insisted they get money from the government (or taxpayers) to pay their own bills, while the homeowners who were defaulting on the badly written loans are just left to fend for themselves? (Nevermind that they are the same taxpayers that the mortgage companies are taking money from.)
Well, I have a solution to the issue that I believe is simple, direct and gives everyone what they need. (President Obama, you can take this idea as your own. I don’t mind.)
First, loan the banks what they need in increments. Let’s say $100 million to start. But don’t just hand over the money. Instead, make the lender sit down with the borrower and figure out what they need to be whole. For example: Let’s say Joe Citizen bought a home for $200,000, interest-only loan, no money down. Now that home is worth $150,000. Then Joe gets $50,000 of the $100 million to pay down his mortgage, but the money goes from the government to the lender. The lender is then required to write a new mortgage for Joe, at current rates and NOT interest only.
Only after the lender can prove in writing that they have spent $100 million assisting individuals with their mortgages, and that new mortgages have been written at current market rates (low), and that the homeowners are capable of repaying, will the lending institution be given any additional funds. And they must prove that ALL of the money went to help homeowners – no bonuses, big raises, or conferences at swanky hotels.
If the first $100 million isn’t spent within a year then whatever money is left over goes back into the pool of money earmarked to help homeowners stay in their homes. In other words, if the lending institution wants to hoard the money instead of using it for good, then they get nothing. They will fail, and a bank that is more willing to help Americans stay in their homes will be there to pick up the slack.
What’s the result? People have mortgages that they can afford. Banks aren’t left holding the bag for the correction in the housing market. Individuals will have more cash at the end of the month to spend on rebuilding the economy. Banks will have the cash flow they need to feel more secure about lending to businesses again. Businesses will feel more secure and be able to expand and hire more workers. And on and on.
Don’t tell me it’s more complicated than that – I know it isn’t. The issue is to get money flowing, and this solution is designed to do just that. It really is that simple.