Tuesday, September 30, 2008

If I Had 700 Billion Dollars

Let me start this by saying that I am no economist (which I’m sure would have been very clear shortly anyway), I’m just an average person who is observing the financial goings on in my nation. Luckily, in America at least, you don’t have to know what you are talking about to have an opinion on it (see Kevin McCullough or Cooper Lawrence).

The topic of the day, and indeed month, seems to be whether or not we should bail out all the financial institutions that, through their own immoral, at best, behaviour has found themselves in a bit of a pickle that threatens to bring down the nation’s economy.

What I have found amusing during all of this is the people who were all for the “free market” and “de-regulation” that allowed these companies to get into this mess in the first place are now the ones screaming loudest for government intervention. Suddenly all of these fiscal conservatives have become downright socialist. What happened to the free market taking care of itself? I thought that the idea was that if a company couldn’t hack it, they should fail.

All of that aside, I’ve been doing a little (very little) looking at these bailout ideas. The most popular one seems to be the government spending $700 billion that it does not really have to buy the bad debt off of the people who so willingly incurred it in the first place. It seems to me that we are talking about rewarding people for stupidity at best, fraud at worst. I think I have a better idea.

My idea is, instead of giving the money directly to the banks, we funnel it through the homeowners who were given loans they never should have qualified for in the first place. Homeowners should be able to apply for a piece of the bailout money to be put towards paying off part of their current loan and then refinancing the lower amount at a new fixed rate that they actually could afford.

I know this is still rewarding people for doing something stupid, but in the cases of many of these debtors they really did not know any better. They were told that they should take out all that they could; after all home values are just going up, up, up! I know this happened because it happened to me; I’m just far too stingy to have fallen for it.

The last time I refinanced my home, the loan broker told me that I qualified for a much larger loan, which is horse-crap as over half of my monthly income (maybe a third of household) goes just to the mortgage payment. I would like to buy nice things, but not if I’m going to lose my home in the long run.

Keeping people in their homes is good for American, so I do not think that any bailout plan should not involve keeping Americans in their homes. Look around your neighborhood, there are the houses with ‘For Sale, Bank Owned’ signs in front of them, and they look like crap. They’ve been vacant for months and they look it; brown lawns, leaf covered ground, and just a general look of abandonment to them. They are eyesores, and the current plans look like they would all lead to more of that.

In the end, the banks will still get their money, and would still be saved whether they should be or not, but it could help more Americans get to keep their homes. The current plans don’t look to me like they are going to benefit the 99% of American home owners who are at risk of losing their homes to foreclosure, so why bother?

I’m sure my plan has flaws to it, but none of the plans suggested up to now can really be said to be perfect either. There are people who are much smarter than I am who could make this idea work, who could fill the holes, and work on the specifics.

If the government does not want to institute something that will help a large number of Americans, then screw it. Let the banks fail, the government can just take them over. The money in most people’s accounts is backed by the government anyway, so there is little risk to the average American if this happens. Alternately, a financial institution that was not stupid/greedy enough to get themselves into this mess in the first place will buy them up.

Remember, it’s supposed to be all about the free market, the market will regulate itself. If the market cannot keep itself in check, then maybe there should be some regulation again. It worked before.


Anonymous said...

So Void, I ultimatley agree with you. Yet it is amazing how people tend to be. When you made the remark on the bankers telling you that you qualified for a higher loan, you were just smart enough to know what you could and could not afford. My friend wants the two of us to buy a place in a year since we would be able to get a deal on houses now. But what she doesn't know is the big risk she'll be taking. First off, she's discussing a possibility of buying a condo versus a house. Don't get me wrong, but I don't want to buy a condo. Have you seen how many sale signs are up on condos compared to houses. What is going to happen when we finally decide to move on in our different directions. Condos seem harder to sell than houses would be. I understand the advantages of living in a condo, but she obviously doesn't understand the disadvantages to it. The other thing is people think they can handle the financial burden and yet they don't know when to tell themselves to stop buying something that they don't need. The question people should be asking themselves when buying a house is "Do I, or my family, really need this much space?" The idea of giving that money to the people to help themselves is a good idea, because from highschool to college, and family and institutions, not everyone has learned how to manage their money in the best of their ability.

Void Munashii said...

Buying a house is a huge step, I know I lost plenty of sleep over it. If the idea of putting yourself in that much debt does not phase you then you should probably not do it.

I have no idea what the condo market is like, but it makes sense that they would be harder to sell. You are, after all, trying to sell and apartment with a fancy name.

If you're going to do it, you should sit down together and really set up a budget. Depending on your income levels and credit scores, you may not even be able to get a loan now that hopefully the banks are actually looking at these sorts of things again.

Now that you are reading over here, you should get an account here, and open up a Twitter account too, it's fun stuff.