Paulson Pulls Bait and Switch, Let's Pull One of Our Own

How is it that Treasury Secretary Henry Paulson can, as he puts it, “change his mind” about how to use the $700 billion bailout dollars that Congress allotted him to save the financial industry?  Wasn’t that a “law” that Congress passed.  Didn’t it have specifics on how the money could be used?  Wasn’t it supposed to be used to buy up troubled assets? 

Now Paulson wants to use the money to inject liquidity directly into the banking system. 

Wait a Wall Street minute!  That’s exactly what the American taxpayers did NOT want to happen.  The whole idea of approving something as distasteful as a bailout of Wall Street was that it had to ensure that it’s focus was to reduce foreclosures on homes, not to just bailout reckless CEO’s and brokers.  What is Congress going to do about this?  Probably nothing.  Oh, do we SO need change!

How about this?  Let’s tell Paulson we’re scrapping the whole bailout plan altogether since he can’t seem to make up his mind about what to do with all that money.  Let’s use it to bailout Main Street, not Wall Street.

Let’s develop a standard mortgage product that everyone can live with.  The first year interest rate would be 5%.  Then each year it could go up or down by no more than 1% and no more than 3% over the life of the loan.  Therefore, the highest it could ever go would be 8%.  If you don’t like variable rate mortgages you’re free to keep the fixed rate one you have.  Let’s tie it to the 10 year Treasury Bond which is currently at about 3.1%.  Let’s have a margin of 2%.  So if rates were to stay the same over the next year your loan would reprice to 5.1%.  It think we can handle that and it gives the banks some measure of profitably even if rates do go up.  Let’s make it a 30 year loan.  Let’s make it available as a refinance only.  Sorry first time home buyers, but, even though this financial crisis may be affecting you, it is not about you.  Let’s also have guaranteed approval for all current mortgagees no matter what kind of house you live in or what kind of mortgage you have or what you’re financial status is.  Sorry banks and mortgage companies but you can’t deny anyone for anyone reason.  This is all about preventing foreclosures.  The banks have it backwards.  People in financial trouble need low rates that they can pay, not high rates that they can’t.  Sorry landlords, this plan would only be for homes you actually live in.

Let’s put Freddie and Fannie back to work (after we fire the CEO’s and the entire Boards of Directors) and require all banks and mortgage companies to offer it.  All closing costs would be paid by Uncle Sam.  Sorry vacation home owners, this is a no cost refinance for all current mortgage holders for their primary residence only.  If there are 100 million mortgages out there on primary residences and average closing costs are $5,000 that would equal $500 billion dollars max.  Let’s limit the window of opportunity to one year to take advantage of this. 

If your house is “upside down”, i.e. your loan value is higher than your appraised value, the difference will be paid by the bailout plan.  If there’s 10 million homes that are upside down and the average amount to be paid to the old mortgage company at closing is $20,000 that would come to $200 billion max.  No new appraisals would be taken because there is certainly an opportunity for abuse there so let’s use existing tax appraisals.

I think this would put the vast majority of troubled homeowners back on the right track and eliminate all those sub prime mortgages out there, may they rest in peace.  Going forward, let’s put a 2% cap on how much other new mortgages can reprice in one year and let’s have a lifetime cap of 6%.  That’s how the adjustable rate mortgages (ARM’s) that I’ve had worked anyway.  How about a cap on initial rates equal to the prime rate?  Why should we pay more than those big corporations?

Since we’re putting caps on things, how about a cap on CEO pay of no more than 100 times the salary of the lowest paid full time worker in his company.  While we’re at it, let’s eliminate these derivative securities that nobody seems to understand.  Wall Street should be for sound investing, not gambling.  If you want to gamble go to Las Vegas. 

And, oh yeah, one more thing.  Let’s fire Paulson!