Friday, September 26, 2008

Bailing Out The Bailout That Will Bailout The Economy

Well, the GOP has put the brakes on any bailout. I can't believe I am typing this: Good for them!

Of course there is going to be a bailout of some sort, and there should be. We are supposed to be a civilized nation (though I question that at times), so we should have a bailout of some sort.

I am a simple thinker and this is what I think:

We should create a federal bailout trust funded with a couple hundred billion dollars. Distressed financial companies should be required to issue AAA Preferred Stock that this bailout trust could purchase. This would give the companies an infusion of cash. This is how capitalism works! When the company is back on its feet, the value of this stock will have risen and can be sold for a profit that would be returned to the fund.

This newly-issued preferred stock would not be available to executives or employees of the company, and their stock would be subordinate to this new stock.

Executives in any of these companies would have their stock options suspended or frozen and they would be required to hold their shares until such time as all the newly-issued AAA Preferred Stock was repurchased and the company was solvent. Using a method like this would prevent the newly-minted Wall Street Welfare Queens from benefiting from their failures.

This same trust should issue standard 30-year mortgages, at about 6.5%, to people who have bad mortgages on homes they can otherwise afford. Some people purchased appropriate homes for their income level and are only falling behind because the adjustable interest rate has sky-rocketed. If a home-owner is in a home that they are qualified to own, we should write them a proper mortgage.

As those mortgages become stable and profitable, they could be sold by the trust to financial institutions to regain some capital.

This deal should be offered only for a primary residence for families who own only this one home.

People who purchased more home than they could afford, or speculators who hoped to cash-in on the real estate boom should lose everything. There should be no bail-out for second homes, vacation homes, or McMansions owned by people who can't afford them even with a proper mortgage. When those properties fail and go into foreclosure, the real estate market will correct and in due course all property will begin to regain value in a sane and appropriate manner.

Yes, we should establish a trust to save ourselves; but we should be smart about it.

If house prices were allowed to settle in a legitimate market, long-time home-owners would be protected by normal, sustained growth, and new home-buyers could get into the game.

Call your representatives and tell them you want no bailout yet. Tell them to wait until a decent plan is presented.

Barney Frank and George Bush are dead-wrong with their plans!

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