01 October 2008

A Modest Proposal Upon Rescuing Loan Takers and Makers From Their Unfortunate Circumstances

Why find ourselves in a situation where due credit (and credit that is due) are a major issue in both our financial streams and political spheres. The remedy rejected by the House of Representatives recently, and presently being modified by the Senate, places the weight of the government on the side of the issuers, and seeks to relieve the financial stress currently roiling the markets by gently purging institutions of their bad loans while collecting these odious debts in the hopes that time will disinfect these diseased and distressed titles and instruments.

Critics of this complain that this purgation does nothing to change the fundamental nature at the bottom of this crisis, and would only create a situation where we end up with either of one of two extremes, we will either be financially blocked and constipated when the dust settles, or there will be a diarrhea like runniness within the banking system.

I think there's a better remedy, a more democratic remedy, a socially more cohesive strategy that marries the best of the market and the best of what government can accomplish when it coerces folks into following their better principles.

Firstly, you get what you reward, that's a basic law of behavior that goes beyond just human behavior and has been observed in animals as diverse as pigeons, rats, and even dogs (cats are another matter, trying to modify the behavior of cats is simply a recipe for frustration and disaster, hence the phrase, 'like herding a bunch of cats'). With that in mind, any rescue package should not only reward those that screwed up, instead it should democratize the transfer of wealth to everyone, those that played the game the right way, and those that thought they could pull a fast one. How to do this? Easy, relieve all bank loans, debts, mortgages, etc. by 1/3 immediately, and retroactively back to January 2006. All college loans, all mortgages, all car loans, all legitimate debts owed by legitimate citizens to legitimate financial institutions will have their terms automatically transformed by the stroke of a Presidential pen and see 1/3 of the tab picked up by the Federal Government. For loans that have already been paid in full, those customers will get a rebate for 1/3 of the amount, for those that are late a few payments, the 1/3 applied to their payments stretching back to Jan 06 ought to be enough to set them back on the right track. Those that got in over their heads will be relieved, and those that did things the right way will get a nice little windfall that they can sock away for a rainy day, or help stimulate the economy and spend, spend, spend, like is the duty of all good consumers. Let's for a moment ignore those already in foreclosure, for them I have an innovative scheme which should help preserve their attainment of the American Dream and keep them in the ranks of homeowners.

That is the first part of my improved form of fully democratized financial rescue. I have no idea what the price tag on such a scheme would be, but then, even Sec. Paulson had no idea really whether the final price tag on his proposal would be $700B or $250B or $1.5T, he just threw out a number that was both sufficiently large to be frightening, but sufficiently small to seem manageable without swamping the entire federal budget. I'm not going to bother running the numbers on my scheme, the numbers are irrelevant, what matters is the perception of fairness, and the utter lack of favoritism displayed by my proposal. No other proposal plays as fair with your money as mine does. No other proposal seeks to 'reward' everyone, not just those that made the mistakes.

Oh yeah, about those foreclosed homes that are going to sit on the market depressing existing home prices and sucking the incentive for builders to continue to build new homes. That's a big problem, one not being directly addressed by any of the existing schemes, but my scheme tackles this problem head on with an innovative and unique strategy that is so simple, yet so brilliant, that you will both wonder why nobody else conceived of it at the same time marvelling at the rightness of it all and realizing that only a lateral thinker like myself could have ideated such a wondrous solution.

Now that I've raised your expectations here's that part of the scheme in a nutshell:
Foreclosure relief will not come in the form of tax money, or bankruptcy protection, but instead, using the wisdom and size of the federal government as a gentle cudgel with which to modify people's choices, we'll make sure that nobody loses the dream of home ownership, even as they lose their homes. All those foreclosed assets will be snapped up by the US Government at bargain basement prices, and the new loans will be long term fixed mortgages for half the value of the original loans which should make payments easier. The other innovation will be that any homeowner who still can't afford their current home will be assigned either a home of lesser value which they can afford, or a government mandated tenant which will provide them a steady income stream with which they can then make up the difference of their budgetary shortfall so that they can maintain the payments on the home they are in.

I know 'government mandated tenant' sounds scary, but it's really nothing to be too worried about. If Obama's elected and he goes through with his civilian corps expansion, all those 'volunteers' are going to need to go where they are needed most, and are going to need a place to stay when they are far from home. The spare bedroom of a family taking the Foreclosure Bailout will be perfect. Well educated, well mannered young adults will invade these enclaves of distressed homes and serve as models of better behavior for the families that find themselves in trouble. Furthermore, this mixing of socio-economic strata will bring our country together, knitting even tighter the fabric that makes up our land. If McCain is elected, we are likely to see some expansion of the Armed Forces, and to offset the cost of that, fresh recruits, NCOs and even single officers could be likewise housed in the homes of Foreclosure Bailout recipients. I know what you're thinking, 'Dude, I never thought I'd see the 3rd Amendment get trampled on, that's pretty awesome!'. You'd be wrong to think that, the 3rd Amendment wouldn't be violated in this case, since accepting the bailout is purely voluntary, so this would not be the involuntary quartering of troops in peace time, but merely a mutually beneficial financial arrangement between the State, and a person receiving aid from the State.

I suspect that these government backed rent stipends will be so desired that even non bailout recipients will be clamoring to get a hold of one of these folks to house in their abodes, but the recipients will be first in line, and only if the number of available rooms is used before the number of people available are housed will other citizens be given an opportunity to take part in this profitable scheme.

So that's the plan, two simple parts, none of the money goes directly to Wall Street without also directly benefiting someone who has taken out a loan in the past few years. Nobody is asked to give up on home ownership, even those that really weren't stable enough financially to afford it, and as a secondary benefit, this scheme will bring various people into intimate contact with a variety of people they never before would have been so engaged.

Seems like the perfect plan, what could go wrong?

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