200 years ago, Thomas Jefferson warned us: "If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless."
Well, 7,000 families a day are now losing their homes to foreclosures, that’s roughly 21,000 men, women and children each day being forced out of their homes, being stripped of their assets and often their life savings. This isn’t a one-day problem for these people, it can take many years to recover from losing a home, if ever!
Back on January 21st, 2008, when the market was crashing, I rolled out my emergency econonic measures to fix this country and our readers put it into the hands of various people and some of my points have even found their way into policy (or at least rhetoric) but, over a year later, not enough is being done NOW, when we need it more than ever..
You can reread my original article, which included a way to drop oil back to $60, that was written when oil was "only" $85, way back in January of last year – before Bush did the exact opposite of what I suggested and enacted a stimulus that drove prices all the way to $140 a barrel. Of course that was a farce that just inflated the energy bubble into the massive implosion we have now and we DON’T want that to happen with housing so it is very important that we have the RIGHT solution to the mortgage crisis now. One that will help right the global economy, curb inflation and put people back in their homes TOMORROW by doing one simple thing:
We’re going to give every homeowner $100,000!
Not in the George Bush crazy "let’s borrow more money and create more inflation" sort of way. My plan is simple and effective: The US Government issues a simple, one-page form to every US homeowner that allows them to transfer $100,000 of their home loan to the United States in exchange for $125,000 of the home’s equity (up to 50%) plus 5% deferred interest.
- This would effectively halve the average person’s mortgage, putting roughly $600 PER MONTH back into the hands of homeowners.
- This would halve the risk taken by the banks and release as much as $5Tn in liquidity for other types of loans.
- This would stabilize housing prices (people are not forced to sell).
- This would stop the banks from having to "write down" an estimated $1Tn in assets (meaning they can now pay taxes like they are supposed to).
- This would keep families in their homes and in their communities as productive taxpayers.
How much would this cost us? Well, there are 100M homes in this country and if every single one of them took us up on the offer (and remember you are giving the government 25% bonus equity) then it would cost the US government $10Tn, a pretty hefty sum! The reality is that only 10% of the homes in the US have mortgages in excess of $250,000 (it only seems like everyone in your neighborhood) and 30% of the homes in this country have no mortgage at all.
So, of a population of 70M homes with mortgages, let’s assume 1/2 take us up on the offer to go partners on their home, that’s 35M families who feel they need relief badly enough to give up half of their home’s value. Since 90% of the homes have mortgages of less than $250,000, with a median debt of $150,000, that’s $100,000 times the first 3.5M homes ($350Bn) and $75,000 times 31.5M homes ($2.362Tn) giving us a conservative need for $2.7Tn in relief.
Sounds like a very big number doesn’t it? Don’t forget though, this is not a giveaway, this is the United States government investing in United States real estate, putting the money back to work in the economy. As these homes do get sold (average housing turnover is 6 years) we get 15% of that money back each year, even assuming it did all get used in year one.
Since the the government borrows money at 3.5% for 30 years (the price of the 30-year treasury bond), America’s "mortgage payment" on $2.7Tn is $12.1Bn a month. That’s right, just $12.1Bn a month to IMMEDIATELY reverse the housing crisis, IMMEDIATELY stop 7,000 families a day from losing their homes, IMMEDIATELY stabilize the financial community (we just gave JPM $30Bn last fall to bail out BSC), IMMEDIATELY stabilize the $22Tn housing market, IMMEDIATELY revalue the dollar and IMMEDIATELY inject $17.5Bn PER MONTH back into the economy.
How can we inject more money into the economy than we spend? Because the average homeowner pays more than 6% on their mortgage and the government can borrow money at 3.5%, very simple! Not only that, but the government allows you to deduct mortgage interest from taxes so they are already paying 1/3 of that $17.5Bn a month through lost tax collections.
By rescuing the value of the sub-prime home loans and CDOs, we will allow our lending institutions to "write-back" the $1Tn they have taken off the books, allowing them to pay the proper taxes on them. At 35% that’s $350Bn right there – enough to fund our first 3 years of payments!
As the homes get sold, the government gets back 125% of what they invested (plus the interest of course) but, even keeping the simple 125% return and stretching the turnover to 10 years, that’s still a return of $330Bn a year on our $2.7Tn investment that would, of course, lower our "mortgage payment" by 10% a year, even if we don’t reinvest the profits. This is also a very fair package, available to all US homeowners who wish to take part, not just the "reckless investors."
So improved tax collection funds this plan in year one and by year two we’re running at a profit and we save 4M homes from foreclosure, save the economy from disaster and even bail out the evil bankers. Sounds like a win-win solution doesn’t it?
Geithner is under tremendous pressure to come up with "something fast" and this can literally be done overnight for far less money than any plan I’ve heard discussed. The process is simple: Fill out a one page form that you can print on-line or pick up at the bank that essentially says "I/We the homeowner(s) agree to transfer $125,000 of our interest in the property to the US government in exchange for a 5% note on $100,000 to be used exclusively to reduce the outstanding debt against this property. The Government’s interest will be second to the bank’s and above our own and will be paid out of the proceeds on the eventual sale of the property." The form can be filled out, the deed would be amended and there is no need to change the mortgage as this is not a refinance, it is taking on an equity partner in your home. The banks simply exchange the notes for cash or cancel their own Federal debt obligations with them.
If you like this idea, please send this to your Congresspeople. They can debate me or they can steal this idea and pretend it’s their own – I don’t care as long as something gets done in this country. Send it to action committees and people who vote and tell them it’s possible to have real dialog and perhaps SOLVE some of our nation’s problems, rather than blame the other guy or brush it under the table.
You can find your Congresspeople’s EMail HERE!
You can find your Contact for the Treasury Department HERE!