Wednesday, October 01, 2008

Solution to the economic crisis

Economist Dave Ramsey has a suggestion for fixing the economic crisis and it does NOT involve a 700 billion dollar bailout. His plan has three elements:

First, "Insure the subprime bonds/mortgages with an underlying FHA-type insurance with the stipulation that mortgage companies "Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage" and "Roll all back payments with no late fees or legal costs into the balance." This will brings homeowners up to date and allows them to keep their homes.

Then, "Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs."

Second, "Remove mark to market accounting rules for two years on only subprime Tier III
bonds/mortgages. This keeps companies from being forced to artificially mark down
bonds/mortgages below the value of the underlying mortgages and real estate." Ramsey says it also has "an immediate stabilizing effect on failing and ailing banks--and it costs the taxpayer nothing."

Finally, drop the capital gains tax. Ramsey says that investors will then "flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing."

Ramsey admits that this will help the rich, "but it will be their money that stimulates the economy," not ours and our grandchildren's.

If you think this proposal is better than giving 700 billion dollars to the people who created this mess, go to DaveRamsey.com, read the entire proposal, and follow his Three Steps to Change the Nation's Future.

(Hat tip: Kevin)

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