How About a FOUR Billion Dollar Solution?

chisueOctober 3, 2008

Gleaned from today's Chicago Tribune (10/03/08 Page 35):

Business columnist David Greising reports on an idea to offer $1000 per mortgage to mortgage services firms to renegotiate salvageable delinquent mortgages.

The FDIC says two-thirds of IndyMac's 60,000 delinquent mortgages are eligible for renegotiation. Credit Suisse says 6.5 million homes will enter foreclosure through 2012. Two thirds of 6.5 X $1000 = 4 billion dollars.

This sounds better and more useful to me than a 7 billion blank check with no requirements or incentives for mortgage firms to do squat. If the feds pay $1000 per and the firms rescue what would have been a $100,000 write-off, doesn't everybody, including the homeowner, win?

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triciae

chisue,

What you've described does nothing to loosen the credit squeeze.

/t

    Bookmark   October 3, 2008 at 3:38PM
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qdognj

tricia is correct, that solution does zilch to the "real" problem, credit squeeze/freeze

    Bookmark   October 3, 2008 at 5:37PM
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chisue

Wouldn't it shore up banks to be able to keep those viable mortgages? Not have to try to sell the foreclosed-upon houses for dirt? Wouldn't it shrink the inventory of homes for sale and help move the housing market into a better place?

Not saying it solves *everything*; does the 700 bill do that?

(Sorry for saying '7 billion'. You know I meant 700.)

    Bookmark   October 3, 2008 at 6:21PM
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triciae

They don't want to keep them. They need to sell them.

And, no...it does nothing to shore up the bank's capital positions.

To work out of the distressed loans will take months (if not years). We are having an immediate problem & need an immediate solution (at least a solution that everybody trusts).

Ben/Henry Capital is not yet open for business but they have been seen bringing in the furniture...

Hopefully, that'll be enough to unclog the system (I've got serious doubts...I'm afraid we're a day late & a dollar short).

There's a perception problem as much (or more) than an actual liquidity crisis. Our financial engine runs on trust. The tank is empty.

/tricia

    Bookmark   October 3, 2008 at 6:37PM
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sharlanet

I got this solution in my email the other day. The Birk plan. How does this sound? ;)

Hi Pals,
I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.

So divide 200 million adults 18+ into $85 billion that equals $425,000.00

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife have $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent's medical insurance - health care improves

Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( "vote buy" ) economic incentive that is being proposed by one of our candidates for President.
If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!

As for AIG - liquidate it. Sell off its parts.
Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can "never work."

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC

And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

    Bookmark   October 4, 2008 at 1:31PM
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terriks

Sharla, it's too bad that the author of this plan is so poor at math. When you divide $85,000,000,000 by 200,000,000 people you only come up with $425 each, not $425,000 each. Sorry.

    Bookmark   October 4, 2008 at 3:14PM
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berniek

It's just an experiment:
September 18, 2008
Zillion, Trillion, Billion, Million...What's A Few Zeros Among Friends
You know the old saying, "You do the math."
Well in my little experiment today, I wanted to see how many people really do do the math. So I sent the message below to 100 of my pals at random. I wanted to see how many folks would catch my intentional three-digit error...just three little zeros.
So far only 2 people have actually done the math and let me know about it.
Congratulations Rick Steinberg and Derrick Phillips! They got it right. When you divide 200,000,000 people into $85 Billion you get $425.00 NOT $425,000.00. It would take $85 Trillion to get the $425,000 number.
So what's my point? We are all number numb. And, very few people, even really smart folks rarely do the math. So in this election year - when numbers like billions and millions are flying by - it's best to keep a calculator handy! And if it sounds too good to be true...it's always best to do the math.
That's All Folks! Well, not quite...just for the record, I'm still not in favor of bailing out AIG.
Birk
Here's the message below as sent:
Hi Pals,
Im against the $85 BILLION bailout of AIG. Instead, IÂm in favor of giving $85,000,000,000 to America in a "We Deserve It" dividend. To make the math simple, letÂs assume there are 200,000,000 bona fide U.S. citizens, aged 18+.
Our population is about 301 million counting every man, woman and child. So, 200,000,000 might be a fair stab at adults 18 and up. Now, divide 200 million, 18+ adults into $85 billon - that equals $425,000.00 each! Yes, my plan is to give that $425,000 to every adult as a "We Deserve It" dividend.
Of course, it would NOT be tax free. So, letÂs assume a tax rate of 30%. Every would pay $127,500.00 in taxes. That sends $25.5 billion right back to Uncle Sam! It also means that every adult 18+ has $297,500.00 in their pocket. A husband and wife would have $595,000.00!
What would you do with $297,500.00 to $595,000.00?
· Pay off your mortgage  housing crisis solved
· Repay college loans  what a great boost to new grads
· Put away money for college  itÂll really be there
· Save in a bank  create money to loan to entrepreneurs
· Buy a new car  create jobs
· Invest in the market  capital drives growth
· Pay for your parentÂs medical insurance  health care improves
· Enable Deadbeat Dads to come clean  or else
Remember this is for every adult U.S. citizen, 18 and older (including the folks who lost their jobs at Lehmann Brothers and every other company that is cutting back) and of course, for those serving in our Armed Forces.
If weÂre going to re-distribute wealth letÂs really do it! Instead of trickling out a puny $1,000.00 ("vote buy") economic incentive.
If weÂre going to do an $85 billion bailout, letÂs bail out every adult U.S. citizen!!
As for AIG Â liquidate it.
· Sell off its parts.
· Let American General go back to being American General.
· Sell off the real estate.
· Let the private sector bargain hunters cut it up and clean it up.
We deserve the money and AIG doesnÂt. Sure itÂs a crazy idea that can "never work," but can you imagine the coast-to-coast block party?!
How do you spell Economic Boom? W-e D-e-s-e-r-v-e I-t d-i-v-i-d-e-n-d! I trust my fellow adult Americans to know how to use the $85 Billion "We Deserve It" dividend more than I do the geniuses at AIG or in Washington, D.C..
And remember, The Birk plan only really costs $59.5 billion because $25.5 billion is returned instantly in taxes to Uncle Sam.
Ahhh...I feel so much better getting that off my chest.
Kindest personal regards,
Birk
T. J. Birkenmeier, A Creative Guy & Citizen of the Republic

    Bookmark   October 4, 2008 at 4:00PM
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mfbenson

I think one of the biggest problems is that wall street has done a lousy job convincing main street that their health is interdependent. Your average truck driver or waitress sees absolutely no connection between his or her life and what happens on wall street. They see wall street scandals in the news and never any news about how wall street's money being the driver for bringing jobs or products to them. At this point, wall street has collectively ruined its credibility with main street, so even when the President (another example of not having the credibility he ought to have) tells us its a good deal for main street it is disbelieved.

Perception IS reality, and if you don't manage perceptions reality will turn ugly. A lesson wall street is learning too late. That should be "re-learning", but I am skeptical it was ever learned in the first place.

If the SEC or overturns mark-to-market accounting rules, move to Canada. Without market prices being the value of an asset that is for sale, you're left with the "wishful thinking" value of an asset. It would be like if I said that I since I paid $500K for my house, it is now worth $500K plus inflation, never mind if it was in Vegas or somewhere where there's no way I could ever sell it for more than $300K.

To my alarm, the SEC has taken small steps toward this: companies no longer have to consider the market price if the market transactions didn't occur as an "arms length" transactions. Going back to my house in vegas analogy, it means that you magically go back in time to before the foreclosures and use the market value from back then as what you would be allowed to pretend your house is worth.

What a bunch of hogwash. Pretending assets are worth more than they are is just going to make the financial fallout (cleanup, bailout, what have you) that much more expensive. $700 Billion is a pipsqueak in a $10 trillion dollar market.

    Bookmark   October 5, 2008 at 11:13AM
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chrisdoc

I'm concerned about eliminating the mark to market accounting as well. Right now banks don't maintain houses after they foreclose (no lawn cutting, no HOA fees, no taxes, no security, etc). Without mark to market, banks will have even less motivation to move these properties.

A house could be on their books for $1,000,000 but the declining market and thieves stealing appliances, copper wiring and piping could mean the market value is really $100,000. If the bank sells it they would get $100,000 but they would have to write off $1,000,000. So we could expect many more "foreclosure" houses to be left abandon.

The gov't hasn't made any purchases yet with their bailout package but let's say the the gov't is willing to purchase the security that owns that house for $.75 on the $. Now the gov't will give them $750,000 for the house worth $100,000 so it may sit there indefinately.

    Bookmark   October 6, 2008 at 1:32PM
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newjerseybt

Regarding house evaluation...they are worth at least the value of the raw commodities (ex: lumber/steel/copper pipe) not including the labor rates of construction in a given geographic region and is in good condition as chrisdoc alluded to.

They are only worth that full value to an individual who does not need to have a mortgage; does not need employment; can easily pay the local city/State taxes; does not need government services; efficiently uses energy and the residence is not located in a war zone.

Now we need a formula for indexing offsets....lol

    Bookmark   October 6, 2008 at 9:10PM
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