Wow. I honestly didn't see this one coming. I can't believe the government got enough sense to not pass the plan as presented. However glad I am that they didn't pass this bill, that doesn't mean I don't think the government should not do anything. Sure the stock marketed plunged. My own portfolio took a bigger hit than the overall stock market. But that doesn't mean the government should do something just to help me out.
All along my gripe with the plan was that I think it wasn't solving the core issue and it was rewarding bad behavior. I contend it is important that the people who bought and sold these assets should take the brunt of the pain. I would extend this even to the person who borrowed in the money in the first place. It doesn't bother me at all that this means some people will lose their house. They should have never had a house they couldn't afford in the first place.
But I could concede that the government should do something to ease the rather large economic shock we may soon be facing. I don't think it will be as big as others are thinking, but I do believe that we are facing some issues. The core issue we are currently facing is the sudden loss of credit. For those who don't quite understand this just think of it that banks and investors are hesitant to extend credit (lend money) to people even in the short term. Credit is the oil of the economy. It lubricates everything and makes transactions between parties easier and more likely to happen.
Now the government planned on easing the credit problems by buying banks’ bad assets. This to me is like treating cancer by focusing on easing the pain people feel rather than going after the cancer itself. I’m not sure how great of a plan it is to throw good money at bad assets. I also have a serious problem with moral hazard. You would essentially be bailing out the very people who don’t deserve it.
So here is a simpler solution. Call it the Double Journey Economic Recovery Act of 2008. The core problem is people who deserve it not being able to get credit. I would just have the government, for a very short period of time, be able to extend credit for the credit worthy. They could accomplish this by working with banks and the markets to secure NEW debt. For those with high credit ratings, say individuals with a fico 700 or better or corporations with at least an A rating, the government would back the loan. They could go a step further, to protect the tax payers, and require that there be adequate collateral and that any default on the loan would be subject to collection by the IRS.
This would ensure that banks felt safe lending the money and keep taxpayers off the hook from any defaults. It would also NOT bailout anybody who had previously made choices that brought us where we are today.
So there you have it. Here is a much better, safer plan that actually gets to the core of the problem. So why can’t our government come up with this or something even better?
I feel for the struggling families who are fighting to keep their homes. Sure, they might have reached to get their mortgage for their homes... but all they want is the American dream of owning a nice home for their family.
ReplyDeleteThose people who went in knowing they were way over their heads will get no pity from me. I'm very happy the House voted the bill down. Let's hope the next bill makes more sense.
ReplyDelete[...] good taxpayer money at bad assets. I even talked about this exact strategy in my post about what the government should consider doing. Why do I prefer this plan? Unlike the bailout, this plan attempts to get to the root of the [...]
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