An Interesting Addition To The Bail-out Conversation

Most everything you will ever read on my blog will have come out of my own head. Today, however, I post something that came out of the head of Dave Ramsey, Christian financial advisor. This is a very compelling addition to the bail-out conversation. Let me know what you think.

Dave Ramsey's Common Sense Fix

Years of bad decisions and stupid mistakes have created an economic nightmare in this country but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three-step Common Sense Plan.

I. INSURANCE
a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance.
Government-insured and backed loans would have an instant market all over the
world, creating immediate and needed liquidity.
b. In order for a company to accept the government-backed insurance, they must do two
things:
1. Rewrite any mortgage that is more than three months delinquent to a
6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the
balance. This brings homeowners current and allows them a
chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or
the sale of the property to pay off the bad loan. In the event of
foreclosure or short sale, the borrower will not be held liable
for any deficit balance. FHA does this now, and that
encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and
ruined lives.
2. 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.

c. This backstop will cost less than $50 billion—a small fraction of the current proposal.

II. MARK TO MARKET
a. 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.
b. This move creates patience in the market and has an immediate stabilizing effect on
failing and ailing banks—and it costs the taxpayer nothing.

III. CAPITAL GAINS TAX
a. Remove the capital gains tax completely. Investors will 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.
b. This move will be seen as a lightning rod politically because many will say it is helping
the rich. The truth is the rich will benefit, but it will be their money that stimulates the
economy. This will enable all Americans to have more stable jobs and retirement
investments that go up instead of down.

This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.