The Solution to the Real Estate Meltdown
Fixing the Economy (updated)
November 11, 2008
The Real Estate Portion of this plan is for
at risk properties going into foreclosure.
The Homeowner no longer owns their homes
but now rents and continues to live in their
homes with the option of getting their home
All real estate properties included to the Trust should be submitted
at 75% the value of the 2003 tax assessment value. This will
be the NEW cost basis for the Homeowner.
The homeowners new rent will be based on the new cost basis
value at a 30 year mortgage at a 4% interest rate.
The original homeowner has two years to purchase back the property
at the NEW cost basis value. After 2 years the Homeowner will have
to pay market value but not Less than the NEW cost basis.
If the original homeowner purchases the home it is with
the understanding they can not sell the property for 5 years.
If forced to sell the property it will be at the NEW cost basis.
This prevents flipping.
This deal is only good for 5 years and the new mortgage
Is in the form of a 5 year certificate/mortgage/bond.
The financial institution can hold the NEW certificate and receive
interest until maturity or may sell the certificate as a 5 year bond.
The profit above the New cost basis is split evenly between the financial
Institution and the US government. Also rent collected will be split
evenly between the US government and Institution.
After 5 years the US government may sell the property at fair value
market rates if no one else has purchased the Certificate.
The profit goes to the treasury.
Whoever purchases the certificate owns the home.
The length of the certificates will be 5 years.
The Pricing of the derivatives is this.
If the Financial Institution is not willing to
have oversight, allowing the US Government
an equity state in the company and a hold
on executive compensation then they receive
$.33 on the Dollar.
If the Financial Institution IS willing to
have oversight, allows the US Government
an equity state in the financial institution and
hold on executive compensation then the
Institution will receive $.66 on the Dollar
The TARP Funds should be split 50% for
Home Mortgages to keep Home Owners
in their homes and 50% for the Derivatives
to pump liquidity back into the Financial
The Funds should be dispersed over
3 Quarters $350 Billion, $250 Billion
and $150 Billion, First come First served..
This stabilizes the real estate market.
Gives homeowners a chance to reclaim their homes.
Punishes the financial institution for not doing proper due
diligence, but also allows them to mark to market the
value of their holdings.
It also allows the treasury to receive a fair return for it's risk.
FIXING THE ECONOMY
The US government needs income to run.
Without the income the US government must borrow funds
from other sources.
The more the US borrows, the higher the US Debt goes and
the larger the payment on the Debt Interest becomes and the
more money the US needs to borrow.
The double edge sword is that as the Debt grows the faith in the US
Economy and the US Dollar declines.
The US dollar has fallen by almost half against every major
The Tax Cuts did not stimulate the economy, did not
create 15 million jobs, did not balance the budget or lower
the debt and did not increase revenues. Add to this mix US
companies exporting not only jobs but entire industries overseas
to maximize profits at the cost of US citizens and you have the
second leg of the collapse.
The American middle class, the true engine of the US economy was
Americans were losing their jobs at the same time interest rates were
rising and core inflation WITH food and fuel were exploding higher.
Interest rates were rising so that Foreigners would buy the US
Treasuries to finance the DEBT.
Unfortunately the American middle class had
Adjustable Rate Mortgages tied to the interest rates. So American
Mortgage payments increased beyond their ability to pay.
Foreclosures began, and created a falling real estate market. The
more foreclosures the more home prices fell.
Middle Class Americans had to make a decision, sell their homes at a
lost or hold on in hopes that things would turn around.
Unfortunately not only did things NOT turn around, things became
The Fuel from Food program accelerated the decline of the economy. It
created a spike in grain prices and food costs and did little to
reduce the price of oil products.
The new law making bankruptcies harder and also no longer protecting
people from losing their homes, which means Americans could not
attempt any financial remedies to restructure their debts.
Financial institutions looking for a new way of making money, linked
up with mortgage brokers to securitized loans in early 2001 to 2003
with creative vehicles such as no money down, interest only, 5 year
Everything looked good on paper but was hinged on one thing, the
continued strength of the Middle Class, which I have shown was under heavy
As Americans fell behind on their payments the securitized mortgages
were not receiving payments so began to lose value. As the housing market
continued to collapse so did the securitized instruments.
So here we are. I streamlined this, there were a few other issues,
irresponsible spending, off budget expenses of two wars and Katrina.
How do we fix it?
There is no easy fix.
The US Debt most be reduced.
The economy must be stimulated.
The middle class most have jobs.
The long term costs of Medicare
Medicaid and social Security must be addressed.
The tax cuts must be rescinded.
Government spending must be reduced and pay/go instituted.
The age at which retirees can claim benefits must be extended by one
month a year and benefits will have to be means tested.
The alternative minimum tax must be raised to exclude individuals who
are single at $120,000 and Couples to $200,000. (middle class tax
Social Security taxes need to be raised to 7.5% split between
employer and employee and also raised to include the first $200,000.
(I need to double check this percentage it may be less)
Businesses will receive tax breaks equal to the gross expense of
bringing US jobs BACK to the US for 7 years of continuous employment
of the position as long as the net jobs of employed are increased by
the same number of jobs at the job site.
Health Care should be bottom up.
$10,000 of health credits per tax payer for preventative care. The
individual Must get a physical check up each year or lose a portion of
the benefits. Give the Taxpayer a lifetime Budget of $250,000 for
medical care of their choosing. Pro rate this by age 18 to 72 at the
start of this program.
The way to keep medical costs down is early treatment. If a person
does not address a medical problem reduce their benefits.
This is not to REPLACE medical insurance but to give a minimum level
of medical care.
All of the above is the medicine to get the country back on track.
Ending the tax cuts to the rich will lower the debt, which will
strengthen the US dollar, which will mean oil will cost less, which
means inflation will go down, which means core inflation including
food and fuel will diminish, which means the economy will become
stronger because US workers will be able to afford to buy
discretionary products, which will employ other Americans who will
now have jobs so they will not lose their homes which means the housing
market will stabilize, which means banks will be more solvent, which
means money will once again become liquid which means loans for
investments will once again become available which means industry
will grow which means increasing GDP growth and more jobs.