September 30, 2008
Kill the bill and pass the common sense fix
Babalu friend, Pep, sent me a link to something called the "common sense fix" that's being promoted by Dave Ramsey. For those who aren't familiar with Ramsey he hosts a financial talk radio show where he encourages people to get out of debt and invest wisely (a male Suze Ormond if you will).
Here's the fix according to him:
Common Sense Plan.I. INSURANCE
A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
B. In order for a company to accept the government-backed insurance, they must do two things:
1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.
C. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.
B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.
The best thing about this is that it doesn't cost that much and it certainly won't hurt anything.
If you agree with this, it's important to pass it around and contact your legislators.
Posted by Henry Louis Gomez at September 30, 2008 11:33 PM
Comments
Dave Ramsey was on TV talking about this the other night.
Posted by: Lazaro ![[TypeKey Profile Page]](http://www.babalublog.com/nav-commenters.gif)
at October 1, 2008 06:42 AM
I like Dave Ramsey and his common sense solutions to personal financial problems, but there's a couple problems with this:
"2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs"
Has a nice populist ring to it, but I really don't think we want the gov't granting itself the ability to abrogate private sector contracts at will. There's a reason for these golden parachute deals - it provides an incentive for a good CEO to take a bad(or risky) position. An outrageous example - if I want to hire you to test fly an aircraft that has a 90% chance of killing you, then I have no reason to believe that you'll do the job cheaply.
"A. Remove the capital gains tax completely."
Great idea, but the Dem's will never go for it...
Posted by: Diogenes at October 1, 2008 08:34 AM
Diogenes,
I don't agree with killing golden parachutes or interfering in the private sector either but you left out the relevant details:
as long as the company holds these government-insured bonds/mortgages.
It means if you want the aid of the Federal Government to provide liquidity to your firm then you have to live within the guidelines of the program. Nobody is forcing these firms to take the deal. There HAVE to be strings attached because the taxpayers are assuming the risk. Period. Firms that don't participate won't be bound by this because they made the right decisions before.
As for the Dems not going for the elimination of capital gains taxes, it's on their heads. We've let them cower the Republicans for too long on too many issues.
Posted by: Henry Louis Gomez at October 1, 2008 09:05 AM
"It means if you want the aid of the Federal Government to provide liquidity to your firm then you have to live within the guidelines of the program."
It also means granting the Fed's the right to regulate private sector compensation. This is just populist claptrap and has no place in legislation. There is no apparent linkage between exec. compensation and this crisis. I tend to agree that corp. exec's are overpaid, but I don't want the Fed's deciding what anyone's pay should be.
"As for the Dems not going for the elimination of capital gains taxes, it's on their heads."
"On their heads"?? The Dem's have raised hanging tax cuts around the necks of Republicans to an art form. If the Repub's try to hold this package up by insisting on elimination of the capital gains tax, Pelosi will be on the House floor with a speech that will make Monday's screed sound like kisses and roses and it will immediately show up in campaign ads. The result will be a bigger net loss in both chambers come November. It's not right, just reality.
Posted by: Diogenes at October 1, 2008 09:43 AM
I think if there's a bargain to which there are two parties in which one is providing capital to the other, then they have a right stipulate conditions. It is a contract. Nobody forces a firm to participate. This happens all the time. For example there's a program to publicly finance elections. The candidates that sign up for the program derive a benefit of matching funds but they waive their right to spend unlimited amounts.
The government stipulates, as it should, many conditions on people who benefit from its programs.
No, CEO salaries are not linked to this crisis but consider that these firms are asking for a hand-out. It's more important to work out the bad loans than give some CEO a golden parachute. If you don't require such a thing, you're basically subsidizing the CEO's salary and benefits.
No thanks.
By the way I agree the Dems have made it an art form and the Reps have let them. We have been unable to articulate why lower taxation is better for EVERYONE. If we keep conceding to them then we'll never stop conceding to them. You know as well as I do that lowering taxes right now helps the economy. Why should we let Democrat demagoguery stop it. Why do they get to dictate if the facts aren't on their side.
Posted by: Henry Louis Gomez at October 1, 2008 10:09 AM
One thing Dave missed:
IV. Repeal the Community Reinvestment Act - the root cause of this entire mess.
Posted by: Diogenes at October 1, 2008 10:58 AM
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