U.S. Stimulus Package Comment
A Positive Criticism
I have to admit that President Obama has respectfully taken charge of a disastrous situation and offered a polite and professional leadership role in his newly elected administration. Unfortunately, the experts that he relies upon are still politicians that really don’t understand or grasp the matter at hand. A domestic stimulus package will not work as I previously have written about for a number of reasons—it must be global.
Also, a trillion dollar package at the cost of tax payers is nothing short of pissing into a tidal wave. Creating 4 million jobs at the lower levels of socio-economic standards is not very productive. The cost of training and transition, the potentials for abuse and policing and the ability to solve anything-long term will simply not work.
Relative to possible domestic policy, what appears to work is the Chinese model for aligning capitalist interests with government participation. This is quite different than the American Government approach of black hole subsidization.
Unfortunately, the economic model that created the volatile market circumstance that America is in cannot be changed over night. As a matter of fact, a better look at it would be to adjust what infrastructure exists and allow access to capital to all. In addition to a global rescue package that can be globally profitable for all of the participating nations that I have previously written about using treaty law in conjunction with the World Bank, there is a simple system to begin with.
Mortgage brokers and Banks that cater to consumers—particularly primary home loans, is the easiest method for both pumping cash into the market as well as generating taxable income. Because of the forecasted population growth in America over the next couple of decades, it makes sense to rekindle this market first and allow the average person to have access to both refinance and potential equity in their homes. The only way to achieve this is through a combination of collateralized money supported by Government programs and the ability to take back home mortgages that are underwater and make subsidized interest loans so the payments are in line with what a comparable home would be in the area that is not subsidized.
Realizing that over 35% of all Americans have substandard credit and this number is growing daily, there needs to be a no documentation loan program as well as an income verification only and prime borrower program. The primary difference should not be interest rate but equity in the home as compared to appraised value.
Unfortunately, the Government needs to offer a controlled program for loans allowing for fixed rates at no higher than 5% for bad credit and jumbo loans to $2 million. Prime borrowers with full documentation can have rates as low as 4%. In between would be limited documentation loans. This would only be for primary residence homes. All other housing would need to be underwritten by conventional lenders.
Newly built homes would not be part of this program—only existing homes as of the date of the beginning of the program and any new construction with subsidized rates for the first owner would not be eligible either. Obviously, townships have had trouble governing excessive construction and this needs to stop for several years for the market place to catch up.
By allowing the average person access to reasonable cost money, the service providers related to the housing industry will flourish. This includes: repair and renovation, decorating, inspection, township support staff, school and property taxes for vacant/abandoned properties, municipal services, landscaping services, realtors, mortgage brokers, bank officers, inspectors, lawyers, title companies, home owner and title insurance and much more.
The infra structure for this type of program exists. The clear difference is that any real estate taken back by the Federal Government is done so with paper that has no real cost to the Government. Printing money to buy hard assets is not a bad trade. Printing money to create jobs that have no redeeming return other than potential income tax later is worthless. Allowing free market enterprise to support a flourishing housing market for residents is a major industry and supports indirectly everything from the local McDonalds to Doctor Offices to Clothing stores and more. Access to equity capital in homes through equity mortgages at a reasonable interest rate will stimulate the bond and stock markets.
This program does not address the global instabilities with our valued trade partners nor does it address those that are staving in emerging nations. It also does not address the ability to eliminate taxation as the US and others know it because of the potential profitability in the world economic package that I previously outlined in another white paper.
For some reason, the American Government with all of its smart people that provide advice to the President continue to look for the blame and to stop it from happening again and punish those responsible. This is not a situation that requires blame. It is one that requires a level headed approach with some additional considerations. Simply put, if the Government is going to allow banks to be the conduit for the new money proposed herein, the banks should be limited to a very small administration fee. They should also have assurance that the Government will take back any troubled loans.
These troubled loans should never be sold at short sales into the market place as they will harm all of the other area comparable values. Instead, they need to be offered on either rent to own programs or with reduced interest rates if the homes are less attractive than comparable ones for any particular reason. Lowering payments as opposed to lowering price will help stabilize the market place in general.
Gordon “Grant” Curtis