Bailout or Sellout?
>
> By Bruce C. Davison
> January 24, 2009
>
> The financial “solutions” put forth by the United
> States Congress immediately prior to the United States
> Presidential election left a large portion of the electorate
> in a state of both astonishment and shock. They were
> astonished by the magnitude of the “crisis” that
> suddenly appeared on the national news. President Bush
> immediately pushed the "crisis" as a catastrophe
> of immense proportions. It was so bad, it required the
> “rush to judgement” mind set not seen since President
> Roosevelt pressed Congress for a “Declaration of War” on
> December 8, 1941.
>
> Bush didn’t get the results he wanted right away.
> Within a couple of the weeks he did get the biggest
> “bailout” the Congress could cobble together.
> Unfortunately the plan called for massive unbridled spending
> and virtually no plan for how or when the money would be
> returned to the people (i.e. reduce the National Debt).
> Bush’s Secretary of the Treasury, Henry Paulson, saw his
> chance to reward his friends in the Banking Community with
> an initial gift of $350 Billion of the taxpayers' money!
> (But wait there’s more, there’s another $350 Billion as
> soon as we can pry it loose from the Congress!).
>
> The shame of all of this is that Congress, Wall Street,
> and the Banking Community has poorly served the people of
> this county. Both the Democrats and the Republicans bear a
> heavy culpability in allowing this travesty to happen.
> Furthermore, they are apparently still blind to the
> alternative solutions to the problem. A problem brought on
> by the twin forces of greed and Political Correctness.
>
> Allegedly, the “toxic” loans generated by Fannie Mae
> and Freddie Mac, “bundled” by Wall Street brokers and
> sold to the Bankers with inflated credit ratings of AAA,
> etc., caused a paralysis of the American economy. This
> paralysis then began to spread, allegedly threatening a
> worldwide depression. Holy cow, Batman! How could the
> smartest and best of our “money handlers” lead us into
> the valley of the shadow of economic death? The causes are
> many but the two major causes are:
> >
> 1. Greed by all concerned and,
> 2. The “Political Correctness” of allowing almost
> anyone to get a home loan backed by Freddie Mac and Fannie
> Mae if the applicant had a pulse and signed on the line that
> is dotted.
>
> Well, enough of this anguish over the spilled milk of
> stupidity and greed that brought us to this sorry state of
> affairs. The time has come “said the walrus” to see if
> some of the damage can be undone before all the money is
> gone down the drain. Hold on to your halo Mr. Obama. Try
> not to grin Mr. Bush, this crisis can be put back in to the
> bottle if we have the collective will to objectively
> evaluate some of the other solutions not offered by McCain,
> Obama, Bush, Reid, Pelosi or any of the other so called
> leadership of this country.
>
> The major portion of the problem resides with the banks and
> the now “toxic” loans that led to massive numbers of
> home mortgage foreclosures. Additionally, the failure of
> numerous banks and other financial businesses, were to be
> expected. The solution must be to stop the foreclosures by
> removing the “toxic” element out of the deal and a
> re-establishment of orderly, reasonable, predictable real
> estate markets.
>
> Obviously, there are and will be other solutions to the
> problem but I want to be sure that at least one of them is
> considered here and now. I call mine the Davison
> Co-ownership and Recovery Plan. Bear with me while we
> consider the following facts:
>
> 1. At no time in the history of the United States real
> estate market has the value of all residential properties
> lost value over any 20-year period.
>
> 2. The value of the vast majority of homes has appreciated
> between 5.5 to 6.5% per year. (In some cases, the value
> doubled or even tripled in a similarly long period, e.g. 20
> to 25 years).
>
> 3. No one in their right mind would rather be tossed into
> the street if only he could stay in his home for the price
> of affordable rent.
> >
> The Plan:
>
> 1. Re-write all of the so-called toxic loans as a
> partnership between the homeowner and the United States
> Treasury. Enough TARP money would be invested in each of
> the homes so that the remaining mortgage to be paid by the
> co-owner would be equivalent to affordable rent.
>
> 2. The value of the equity invested in the home would bear
> interest at 6% per year until the homeowner sold the home or
> bought out the Treasury’s equity by acquiring a second
> trust deed based on the increased over all value of the
> property and the homeowner/partner’s increased income.
>
> 3. The government could wait for the homeowner to buy out
> the Treasury’s equity or it could sell the equity position
> to investors who would be satisfied with a safe, long term
> return of 6% per year, thus retiring a portion of the TARP
> debt.
>
> 4. All monies received from the equity in these loans would
> be available to assure that the Social Security System will
> not run out of money in 2017 as is currently predicted.
>
> 5. The plan would require that the homeowner/partner buy
> out the government’s equity or allow an independent
> investor to be his new partner within 20 years thus
> guaranteeing the return of all of the TARP funds to the
> government plus interest.
>
> The benefits of this plan would be enormous and the cost
> will be less than the $700 Billion already slated to be
> thrown at the problem. Hang in with me a little longer
> while we enumerate these benefits.
>
> 1. The banks that are still in trouble with the so-called
> toxic loans would immediately receive from $10,000 to
> $150,000 of government money for each loan that is
> re-written under this program. Within a few weeks their
> bank’s solvency will be re-established and they will be
> able to expand their ability to write new loans for both
> homes and United States manufactured cars.
> 2. Additionally, small businesses will once again be able
> to have the “bridge” loans they need to facilitate the
> day to day operations of their business.
>
> 3. The millions of homes that have become vacant and many
> of which have become vandalized, would instead, have a happy
> “renter”/homeowner living in them and he would be paying
> off his share of the Co-ownership Mortgage.
>
> 4. The cost of the program would be essentially “$0”
> because all the money would come back to the Treasury with
> interest.
>
> 5. The construction industry would soon return to normal
> because all of the “foreclosed” homes would no longer be
> on the market, depressing prices and causing further loss of
> jobs.
>
> 6. The unemployment rate would soon return to the
> historical low levels of 3-4% because the banking, trust
> companies, and the real estate segments of the economy would
> hire a large number of employees to process the re-written
> loans. The income tax base would increase and provide
> billions of additional tax revenue without a tax rate
> increase on anyone.
>
> 7. The repaid “new equity” portion of the loans would
> come back to the Treasury with interest just at the right
> time to shore up the Social Security Fund to help replace
> the valueless IOUs the government has stashed in the so
> called Social Security Trust Fund. Currently, the Social
> Security Trust Fund is “secured” by thousands of
> non-negotiable bonds that are currently stored in a
> five-drawer filing cabinet in Parkersburg, West Virginia.
> These bonds have the same relative value as a bucket full of
> sand in the middle of the Sahara Desert. Compare that to
> the equity in an owner occupied piece of American real
> estate!
>
> 8. Note, within 3 years the baby boomers are going to
> begin joining the current 35+ million Social Security
> retirees, and there will soon be only approximately 5
> workers for every 2 retirees. We are going to need real
> value in the trust fund to secure their future income.
>
> This plan is obviously short on the “nuts and bolts”
> of the rules necessary to carry out the plan. But it is
> clear that this plan offers a much better result then the
> current plan of dumping money into banks who then won’t
> loan it out because of the uncertainly of the current
> market. I am not in a position to calculate the tremendous
> number of recently lost jobs that would be restored, but a
> restored job is just as good as a newly created one.
>
> If you have stayed with me to this point, I hope you will
> contact your Congressman and make sure he becomes aware of
> the benefits of this plan. Just voting for someone is not
> enough. We occasionally need to bend their ear so they know
> what the people they are paid to represent really want.
>
> P.S. I welcome your comments. Contact:
