You will not hear anyone talking about this because it would solve our current financial debacle. The solution is an easy one and it gets at the route cause of the problem. The 700 billion dollar bailout and/or stimulus package should be distributed from the bottom up as many have intuitively felt would address the problem. If an approach similar to the bellow idea of “trickle up” is not adopted and the same old policies of “trickle down” are employed then this is not real change but more of the same.
The failing real estate industry can be boosted not by the old process of foreclosures but by creating a new program that will further the middle class, bailout financial institutions, while at the same time increasing consumer spending. How you may ask.
First and fore most the key to jump starting the economy is debt forgiveness not simply debt modification. Without going into the details debt modification increase the burden on the payee and is at best a temporary or short term fix for the financial institutions.
Second, the plan must be ambitious and bold. For example, the government in one sweep of the pen should get rid of all second mortgages on the books for all residential properties to the tune of a maximum $400,000. Any 2nd mortgage residual funds should then be rolled over into the first mortgage. Thereafter the government should not allow banks to right any more second mortgages on residential property, if a home cost $2 million dollars than the lending institute should write a first mortgage for 2 million or walk away from the deal.
Third, this money should be paid directly to the banks with the stipulation “no closing cost” for the debt reduction or if a rollover of the residue into the first is needed. The infusion would salvage the banks; eliminate almost if not all of what has been termed toxic loans. It would boost the middle class because not only potential foreclosed properties would be the targeted but all residential second mortgages would be eligible for this program.
Fourth, this would put excess money into the system allowing financial institutions to free up capital to increase lending. The government should give incentives to encourage banks to modify all first mortgages. The emphases should be on reducing monthly payments using the now available lower interest rates.
Fifth, and second most important, eliminate FICO. The acronym stands for Fair, Isaac and Company. Historically they assign credit ratings. This process is dehumanizing and inherently unfair. It determines who gets credit. In some cases who gets to work, just to name a few. It removes the business of people doing the jobs of interacting with people taking the use of good judgment away from them. So rather than taking risks on the true character of a person the breaks go to those who can best manipulate the system. This truly is a huge negative and beyond the scope of this text. Just let’s say FICO is akin to the mark of the beast, end of story.
Sixth, it should be obvious by now how this is going to increase consumer spending. Not only will this free up massive amounts of money so the banks can start lending again, these same institutions will not be burdened with owning properties where they have to carry huge overhead that goes along with home ownership. Further homeowners will have much needed money to spend and or save. By spending money what does this do for the economy? Easy, it ignites production. Then and only then will the old concepts of supply and demand kick in.
Seventh, the process will ignite production and this means increase employment. Spending leads to job growth and job growth will increase the middle class.
Eight, finally we come full circle increase employment mean increasing the numbers on the tax roles. By putting the money back into the middle class this will be the best way the government can invest in itself. As tax revenues increase the government can pay down its debt; and invest in other revenue generating and environmentally green projects.
