Bailout Reform

Many of us are upset about the economic crisis, especially as we watch the fiasco known as the bailout. Just the other day we were told that instead of buying up all the bad mortgages that are directly responsible for much of the mess we find ourselves in, the Government is now buying banks and other companies.

We saw that AIG, the insurance giant, came to the well once again, all the while providing massive luxury meetings and huge bonuses to company executives, all with the taxpayer funded bailout monies. None of this sits well with the taxpayers.

I was against the idea of the bailout from the start, as many others were and are. However, our Government is bound and determined to keep on spending in hopes something positive will happen. In this light, and simply for the sake of argument, (not that I am actually pushing the idea,) I offer a different pathway for bailout monies.

A brief bit of searching turned up numbers showing there are approximately some 50 million mortgages. Most of these are solvent, being paid on time, but those that are either behind or in default are undermining the entire financial industry. The reasons for the defaults are many, including massive fraud, irresponsible borrowing, etc…, but this is a point for another day.
What if we gave the money directly to the mortgage holders? What might be the consequences? What would be the cost? Will it work? (Note: I am not breaking down the various types of loans or taking into consideration fraudulent loans. This is merely an exercise for the sake of argument.)

From the few figures I have found, the average outstanding balance of mortgages is somewhere in the neighborhood of around $145,000.00. If, for instance, the government gives out half of that money with the requirement the monies be spend paying down the principle and restructuring notes that were written at unfavorable terms. The cost would be about $362.5 billion. Now we put on the rose colored glasses to analyze the potential results!

The financial institutions that hold the loans would be flush with cash. These monies would be required to be the source of new loans, responsible loans to people who can pay them back. They would also be required to pay a small percent of the profits to the Government, (on not only the original monies but future profits resulting from the monies the institutions collected as a result of the new loans,) to pay the debts the taxpayers are now holding as a result of the bailouts.
Most mortgages should now be caught up and affordable. The homes would now have positive equity. Home values should actually rise adding even more equity. People would also have a larger percentage of their incomes available for other spending which has largely been curtailed as a result of this whole mess. With more spending comes economic growth as retailers need to by more product, manufacturers need to produce more goods, including the auto manufacturers which should help to negate the need for the Government to bail them out, more people are employed to produce all these goods which gives rise to more income and more spending. With all of this we should also see more home purchases. As home inventories decline, home building should once again increase, but hopefully at a more moderate pace.
Sales taxes would be up as would real estate tax revenues which will help the states, counties and cities.

If all this were coupled with reforms in Government, (especially in earmarks and institutions such as Fannie Mae and Freddie Mac,) and a positive national energy plan, we could go a long way in restoring the economic quagmire we are now entangled in.
If the problem starts with the consumer overspending, especially on mortgages, would it not make some sense to start fixing the problem on this end? Does this make any less sense than what we are doing now?

Who Is Better For The Economy?

This is a question we are now hearing, and will be hearing much more of once the Democrats finally decide who is going to be their nominee. Like Rush Limbaugh and his Operation Chaos, I could care less who it is. The Republican nominee has already been chosen by the Democrats, so one might suspect, and they would at least be partially correct, that there is some amount delight stemming from revenge as we watch the democratic party self destruct.

Be that as it may, many at this point have crowned Obama as the nominee, so the question of who would be better for the economy is aimed at Obama and McCain. For the point of this commentary, it would not matter much if Clinton was the nominee.

For some time now people have been recirculating a quote from McCain stating that he knows nothing about economics. By the time this circulated down to the average person on the streets, this now means that McCain is an idiot who cannot even add two plus two.

As for Obama, he claims to care about people and wants to provide for them. This translated to the streets as Obama will give you money! This, of course, makes him some sort of economic guru!

Of course both of these conclusions are wrong. McCain is not a genius when it comes to economics, but then, neither is Obama. Obama in fact, has little to no experience in economic matters, except maybe when it comes to use people for personal gain. This does not translate into national economic gain.

But while McCain is not now, nor ever will be an economics major, he at least understands some of the basics. Lower taxes has always translated into economic growth and increased revenues in the government coffers. Allowing more people, including businesses, to keep more of their own money spurs investments that grows the economy. Individuals tend to spend more when they can keep more. This grows the retail and service sectors of the economy. Increases in both of these sectors increases the wholesale sector which in turn spurs growth in manufacturing, all of which grows the transportation sector. This all translates into jobs.

Obama on the other hand, wants to give more, but in order to do so, he has to take more. The only place to take more money is from those who pay taxes. This decreases the money supply, which usually tends to make people like Obama demand more money be put into the economy which always reduces the value of the dollar and creates inflation. Inflation in turn causes people to have to spend more on basic staples of life so they lose confidence in the economy and they stop spending on other goods that they do not really need.

When people stop buying, warehouses back up with goods and the warehouses stop ordering replacement stock. When this happens, manufacturers stop producing and they lay people off. This tends to domino and the economy starts into a downward spiral that is difficult to turn around.

But, Obama cares, and this seems to be all that matters.

So, while neither is really qualified to run an economy, McCain gets the fact that we need to get the government out of the way so people can produce and grow the economy, because after all, the government does a very poor job of this. Just ask Jimmy Carter! McCain also understands that one of the biggest problems we had over the last eight years is that while we had record revenues pouring into the government thanks to the Bush tax cuts, there was also a huge increase in government spending and he knows this must stop.

Now if we could get him to understand that his stance on immigration and global warming will harm the economy much more than all of the earmarks combined, and the economy will do just fine under him, even with a lack of specific economic knowledge!