Economic Fix Idea

[Ralph E.]

Why not immediately redo ever single home mortgage at a percentage of it's current value.

For example, if there is currently $500 (just for the ease of this example) of "good" mortgage debt, and $500 of "bad" debt currently, and that is what is tying up the credit system, immediately reducing every mortgage by 20% would lower the good debt to $400 but also reduce the bad debt mortgages to $400. However, a fair share of the bad debt mortgages could now be "flipped" to the good debt side because some homeowners who were in trouble could now afford the new lower payment. Therefore lets say $100 of previously bad debt can now move to good debt, bringing the total of good debt back to $500, and lowering the bad debt to $300. The net effect is that banks are now carrying less bad debt, and the good debt number remains the same. Obviously i'm using 20% as an example, economists would have to determine what percentage would have the most positive effect on the system.

Those homeowners who were originally on the good side now have more disposable income to pump into the economy, and more of the people who were in trouble can now remain in their homes, the housing market would likely stabilize, and the banks would be in better shape, all without more bailouts.

Thoughts?

[SouthPlatteDemon]

The government should have never mandated that loans be given to people that couldn't afford them.

You can't fix that by having the government even more involved.

The government needs to step out and give up on an ideology that doesn't work.

[Jayster]

Ralph E. - I believe were heading for a world depression . This posturing on the surface is just some of the last call for the fat cats.However I do admire your optimism !!!

Oh and you're idea sounds relatively feasible on the surface , although it would be hard to get the underwriters to agree to a 10%(based on your model) cut ,especially with the free government handouts going on !!!

obviously you'd be willing to listen to a 3rd party type of idea(me too !!!)but mainstream America - does not appear to be open to any other ideas (especially in the Obama knows best phase we've entered - side note Gov. of Illnoise was arrested this morning).

The real problem as I see it is , there is no accountability ,transparency or proper oversite .The fact that shit assets could be re-packaged as good investments is a shill game ,federal prisons should be getting the bum rush from these perps.Also allowing leveraging of 35-1 is freaking insane ,giving loans without proper means checking is freaking insane .And untill some of the core issues are addresed ,we can only hope to put off the inevatable.

Almost all of the current issues have been being discused openly for years and in some cases decades ,but yet no one saw this coming (BS).My main greivence is that even those of us that were good stewards of our money ,will be getting the same shaft as those who lived way beyond thier means. Also don't get me started on the treasury !!!!!


hehehehehehehehe - I think I blew up spell check , good thing there's no grammar check !!

[Spivonious]

I say let the people who bought houses they couldn't afford learn their lesson, and let companies go bankrupt who made bad investment decisions.

Sure it'll be hell for a year or two, but the market will right itself and we'll be much better off in the long run.

[rjohnstone]

I say let the people who bought houses they couldn't afford learn their lesson, and let companies go bankrupt who made bad investment decisions.

Sure it'll be hell for a year or two, but the market will right itself and we'll be much better off in the long run.

If it were only that simple.

You have several major factors you're not accounting for.
There are tens of thousands of homes that are now empty.
Some are now unlivable due to vandalism and lack of maintenance.
This makes them either unsellable and will most likely require they be demolished. That costs tax payers money and will devalue surrounding property even further.
This will be a drag on their local housing prices for more than a year or two. Try decades.

I won't even go into the new home construction business that has been beaten to death by this influx of surplus housing.

[SeventhSon]

Why not immediately redo ever single home mortgage at a percentage of it's current value.

For example, if there is currently $500 (just for the ease of this example) of "good" mortgage debt, and $500 of "bad" debt currently, and that is what is tying up the credit system, immediately reducing every mortgage by 20% would lower the good debt to $400 but also reduce the bad debt mortgages to $400. However, a fair share of the bad debt mortgages could now be "flipped" to the good debt side because some homeowners who were in trouble could now afford the new lower payment. Therefore lets say $100 of previously bad debt can now move to good debt, bringing the total of good debt back to $500, and lowering the bad debt to $300. The net effect is that banks are now carrying less bad debt, and the good debt number remains the same. Obviously i'm using 20% as an example, economists would have to determine what percentage would have the most positive effect on the system.

Those homeowners who were originally on the good side now have more disposable income to pump into the economy, and more of the people who were in trouble can now remain in their homes, the housing market would likely stabilize, and the banks would be in better shape, all without more bailouts.

Thoughts?

Your plan would be *cheaper* than the one that is being implemented to bailout the casino junkies on wall street.

the reason why it has been rejected is that it puts wall street (as opposed to main street) in the poor house, and they've done too many campaign contributions to be forgotten by their puppet politicians.

i believe your plan (or some form of it) has been proposed by the head of the FDIC.

[Ralph E.]

Doesn't it help Wall Street as well in the sense that by reducing the bad debt that the banks are carrying, it increases their viability to survive, therefor stabilizing or potentially increasing their stock value and help the stock market in effect?

I'm sure there are pitfalls to my idea, but i'm curious why they're not working on something like this. It would, in effect, "reset" the value of homes and stabilize the housing market.

But then again, i'm not an economist, just a middle class butthead from Georgia.

[JacksonVHT]

All I know is regardless of what the solution may be; fuck the government.

They are NEVER the solution.

[hippietim]

Ralph - it doesn't help Wall Street enough. The loan debt is just a small part of their problem. They're leverage in every possible way you can think of by betting for and against the mortgage debt. It's way more than the actual debt itself.

The problem with your solution is that is just helps the folks that actually sort of deserve it rather than the folks that purchased politicians.

Sadly, the US Government stopped being "by the people, for the people" a long time ago. Now it's "by the puppets, for the puppeteers".

[Ralph E.]

The problem with your solution is that is just helps the folks that actually sort of deserve it rather than the folks that purchased politicians.

That's how I feel too...

Sad world we live in today, it really is.

[joelayres]

All I know is regardless of what the solution may be; fuck the government.

They are NEVER the solution.

Words to live by.

[Wylde06]

I won't even go into the new home construction business that has been beaten to death by this influx of surplus housing.

I had to do a Financial Analysis for my Finance class, and new home construction was the industry that my group had to do....of the four companies we did...things werent looking good

[Spivonious]

This is kind of rant...

Houses were severely overvalued the past few years. The only reason this happened is because people had enough and stopped paying $400k for a 3br rancher when it was only really worth $250k.

The same thing happened with gas recently. Oil futures drove up the price of oil, peolpe had enough and stopped driving as much. What happened? Gas prices are down to 2002 levels.

Why isn't the government bailing out the oil companies? I'm sure their profits are down too.

The car companies built and sold tons of SUVs and trucks the past few years because that's what people wanted. Gas prices go up and all of a sudden SUVs are evil in the public eye. Now the car companies are going bankrupt for organizing their business around the most popular types of vehicles. Another government bailout for them.

People need to accept that businesses can go bankrupt and the world will not end. Hell, look at most of the domestic airlines. They declared bankruptcy years ago and they're still around. Did they get a bailout?

What's next, bailing out Sears because no one is buying overpriced Craftsman tools? Bailing out Montana because they don't want to raise their taxes to balance the budget? Bailing out the guy down the street because he can't afford a $500,000 mortgage and two kids on a $35k salary?

The federal government is about as corrupt as it can get, and now we are being so naive as to think that one guy in a white house can change things, even though he spent twice as much money in his campaign as both candidates in the last election combined! I have a hard time believing that he won't be influenced by his bigger donars.

I think we all seriously need to read the Constitution again and realize that 99% of what Congress does is unconstitutional. We also need to realize that the President has zero methods to introduce legislation. I say institute a one term limit for all federal offices, and get rid of any agencies/cabinet departments/bureaucracies that aren't specifically enumerated in the Consitution. Doing that alone would do a large part in paying back the money we owe China.