Hank Paulson, Ben Bernanke, and now President Bush think giving $700 billion to the banks will help save the economy, sparing us all from a huge recession.
I have a better idea: Give the money to me. I can get you that bailout wholesale.
Seriously, why do the banks deserve a second chance to screw this up? They knew full well they couldn't loan money to people with no income and bad credit. How does giving them a free pass on this disaster fix anything?
Economists call this "moral hazard," the risk that failing to punish misdeeds encourages future misbehavior.
I call it common sense. Give these jerks a get-out-of-jail-free card, and we're just asking for trouble. Might be in a few years, might be 10, but we will be in this soup again, and deeper.
Now Congress is talking about giving money straight to the people in trouble, the borrowers who got into too deep and now can't make payments.
Whoa there! I bought a house in 2001. I, too, was astounded when it doubled in price in just a few years. But I knew pretty quick that crazy ride was based on nothing but speculative gas.
More importantly, I could see our cost of living expanding with inflation, taxes were getting crazy, hurricanes in Florida had caused our insurance to spike, and all the while my salary was staying flat. I told my wife, "You know, our house is becoming far too much of our net worth. We should get out."
And we did. I'm not ashamed to say we made some money. Not a shocking amount (the decline had already set in), but here's the key: We bought and sold one house, not five as some of the speculators did.
We made a full 20 percent down payment on a perfectly vanilla, fixed-rate, 30-year loan. And we bought a house in order to actually live in it. Imagine that!
We lived in that house for years, never expecting it to appreciate. We sold it in order to move to another town, where my wife had gotten a new job. Pretty standard stuff. A normal American real estate story, except for the part about it doubling in value in five years.
So here's the deal. Don't bail out the banks. Don't give money to home speculators who got in over their heads. Give it to me.
No, not cash. Give me a tax credit, say, $10,000 a year for five years, but only if I buy a house worth at least five times that amount within the next 18 months.
(The Congress did give first-time buyers a $7,500 tax credit recently, but it phases out based on income. Most people in a position to buy a house today make too much and are on their second or third home anyway.)
Do that, and I'm shopping for a $250,000 home knowing that I can make back my hefty down payment over the first five years.
See, people like me are exactly the problem. Too many of us who actually behaved ourselves during the mad rush to make easy money in housing are now gun-shy, sitting on cash and waiting for the moment to buy. Of course, with so many homes coming on the market, there's no incentive to rush. Renting is too easy and too cheap.
I don't relish the pain of others, and I don't expect to see my new house gain value. I'm smart enough to know that homes appreciate normally at, oh, about 1 percent a year.
But I certainly won't be buying a house soon if I know that it will automatically lose value. Who would?
I've got my eye on several nice places, and they all fall pretty much on the median price, around $250,000. The current national inventory is 4.62 million homes, and the median price is a bit less than $250,000. Take the inventory number and multiply it by $50,000.
So, the final bill for my version of the bailout, which we all seem to agree is absolutely necessary, is this: $231 billion over five years. Not a penny to crooked bankers. Not a penny to greedy home flippers.
And if the thousands of potential home buyers like me take this offer, thousands of homes come off the market, putting a floor under the crumbling assets held by all those hurting banks.
Builders back to work, mortgage lenders back to work. We just roll back the clock like it never happened.
Win, win, win. So, to the Congressional reps battling this out on the Hill, just let me know when you can cut the check. I'll call my realtor within the hour.
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