Many of us are upset about the bailout fiasco that has ensued as a result of our economic crisis.
Instead of buying up all the bad mortgages responsible for much of the housing mess, the government is buying banks and other companies.
AIG came to the well while providing luxury getaways and huge executive bonuses, all with taxpayer-funded bailout money.
None of this sits well with the taxpayers. Yet our government is determined to keep spending in hopes something positive will result.
Simply for the sake of argument, consider a different use of this bailout money.
Most of the 50 million or so mortgages in the U.S. are solvent and being paid on time, but those that are behind or in default are undermining the financial industry.
So what if we gave the money directly to the mortgage holders? The average outstanding balance of a mortgage is about $145,000.
If the government paid half of that, to pay down principal and restructure the notes to favorable terms, the cost would be about $362.5 billion.
The financial institutions that hold the loans would be flush with cash, which would be required to go toward new, responsible loans to people who can repay them.
The banks also would have to pay a small percentage of their profits to the government – not only profits from the government money, but also from the new loans that resulted – in order to repay the taxpayers footing the bailout costs.
Most mortgages would then be caught up and affordable. The homes would have equity. Home values would rise, adding more equity. And people would have more money to spend.
Spending spurs economic growth. Retailers buy more product; manufacturers produce more goods; and more people are employed – giving rise to more income and more spending.
This also would create more home purchases. And as home inventories declined, building would resume, but hopefully at a more moderate pace.
Sales tax and real estate tax revenues would help the states, counties and cities.
If all this were coupled with reforms in government and a national energy plan, we could go a long way toward eradicating our economic quagmire.
If consumer overspending on mortgages started this problem, would it not make sense to start fixing the problem on this end? Does this make any less sense than what we are doing now?
Rick Murray is a writer, researcher and analyst in Huachuca City. E-mail: firstname.lastname@example.org