I have a quick fix that will rebound the economy and cost Tax payers nothing:
1) A mandatory moratorium on all foreclosure from now until Jan. 1st, 2010.
2) All loans and lines of credit are automatically reduced to 1% interest.
A) Home/Mobile Home Loans: 1% fixed for 50 years.
B) Car/Boat/RV/etc. Loans: 1%
C) Credit Card Loans: 1%
D) Business Loans: 1%
3) What ever the absolute value of the loans provided at a lender's peak, that lender must continue to lend at least 75% of that (the lender will now have a renewed source of revenue from clients not defaulting on their debt and making payments they previously weren't, thus the lenders can lend this money out). So, if in 2003 a lender lent $100 Million, the lender must lend out $75 Million this year, preferably to business so that business can continue to pay their employees and employees can continue to pay their debts.
Here is how this would work if I only had a $200,000 home loan.
At 6% interest for a 30 years, my monthly payment would be about $1500.
At 1% interest for 50 years, my monthly payment would be about $500.
This would be a $1000 infusion into the economy each month ($12,000/yr).
If there are 100 Million homes out there, and if the U.S. average price of a home is $200,000, then the U.S. could see an influx of $1.2 Trillion into the economy!
Now lets just say my calculations are flawed, which they probably are because I don't know if the U.S. actually has 100 Million homes that have mortgages. I just guesstimated that the average family size is 3 people and being we have a population of about 300 Million, I assumed that each family lives in their own home. I also didn't take into account the number of rented vs. owner occupied housing.
So lets just cut my first figure in half ($1.2 Trillion) and we are still investing $600 Billion into the economy, all of which will be spent at grocery stores, electronic shops, restaurants, car dealerships, and home improvement stores (because Americans, thankfully, are bad savers). This will create more jobs, more income to be spent, even more revenue for businesses, which keeps the cycle spinning.
That's my solution; is it perfect? Probably not; but it make sense to me. What's your solution?
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Sunday, November 9, 2008
Saturday, June 7, 2008
A True Economic Stimulus Plan
There are 75 Million Owner Occupied Households in the US. (US Census)
$12 Trillion in outstanding home loans. (Forbes)
Average outstanding home loans per owner occupied household is $160K.
Of the home loans that are high risk subprime loans; If we lowered their rates to a fixed 5% from their typical ARM 10%, homeowners would see a monthly payment of about $850 rather than $1400.
That's a stimulus check of $550 each month or $6600/yr.
If a homeowner had good credit and already had a fixed 6% rate, they pay monthly $960. This new plan saves them $110/month or $1320/yr.
7% of outstanding home loans are high risk subprime loans or ARMs of 10% (5,250,000). (Forbes)
$6600 x 5,250,000 = $34,650,000,000
$1320 x 69,750,000 = $92,070,000,000
Total = $126,720,000,000
This is $25 Billion shy of what the federal government would pay out, but this would solve the economic problem of subprime loans and end foreclosures. Also, it help those that really need it, the homeowners. It would punish those that cheated the system: the subprime lenders or predatory lenders, but not enough to bankrupt them.
It would cost the government zero dollars, money they could put towards education which also stimulates the economy. Every $1 spent in education equals a $5 growth in the economy (US Dept of Education). No other economic investment can say this, not spending in social services, health care, military, or even infrastructure spending.
So if the government spent the $150 Billion towards education it would stimulate the economy by $750 Billion. Add this to the $127 Billion from making all mortgages a fixed 5% and we have a $876 Billion economic stimulus plan.
The 5% law would only benefit existing mortgages and those in the foreclosure process. All new mortgages from the day the law is enacted would be subject to market rates. This would teach lenders that proper risk management is crucial. It wouldn't be a bail out because no money would go from the government's hand to the lender or the homeowners. It would protect the true victims: the homeowners. It would also free up the courts and counties from foreclosure deliberations and sales.
Land, property, and home ownership are the indicators of wealth. They provide collateral and equity for the owner in order to establish credit and achieve greater wealth. The 5% law would prevent the recently acquired wealth of the poor and working class from shifting back to the upper class and rich through the purchase of foreclosed deeds.
This plan will work if Congress was brave enough to push it through.
$12 Trillion in outstanding home loans. (Forbes)
Average outstanding home loans per owner occupied household is $160K.
Of the home loans that are high risk subprime loans; If we lowered their rates to a fixed 5% from their typical ARM 10%, homeowners would see a monthly payment of about $850 rather than $1400.
That's a stimulus check of $550 each month or $6600/yr.
If a homeowner had good credit and already had a fixed 6% rate, they pay monthly $960. This new plan saves them $110/month or $1320/yr.
7% of outstanding home loans are high risk subprime loans or ARMs of 10% (5,250,000). (Forbes)
$6600 x 5,250,000 = $34,650,000,000
$1320 x 69,750,000 = $92,070,000,000
Total = $126,720,000,000
This is $25 Billion shy of what the federal government would pay out, but this would solve the economic problem of subprime loans and end foreclosures. Also, it help those that really need it, the homeowners. It would punish those that cheated the system: the subprime lenders or predatory lenders, but not enough to bankrupt them.
It would cost the government zero dollars, money they could put towards education which also stimulates the economy. Every $1 spent in education equals a $5 growth in the economy (US Dept of Education). No other economic investment can say this, not spending in social services, health care, military, or even infrastructure spending.
So if the government spent the $150 Billion towards education it would stimulate the economy by $750 Billion. Add this to the $127 Billion from making all mortgages a fixed 5% and we have a $876 Billion economic stimulus plan.
The 5% law would only benefit existing mortgages and those in the foreclosure process. All new mortgages from the day the law is enacted would be subject to market rates. This would teach lenders that proper risk management is crucial. It wouldn't be a bail out because no money would go from the government's hand to the lender or the homeowners. It would protect the true victims: the homeowners. It would also free up the courts and counties from foreclosure deliberations and sales.
Land, property, and home ownership are the indicators of wealth. They provide collateral and equity for the owner in order to establish credit and achieve greater wealth. The 5% law would prevent the recently acquired wealth of the poor and working class from shifting back to the upper class and rich through the purchase of foreclosed deeds.
This plan will work if Congress was brave enough to push it through.
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