Common Sense Plan (instead of Bail-out)

[Bruce Nunnally]

daveramsey.com

We are at a crucial time in our country's financial history. Congress defeated the $700 billion bailout plan on Monday. However, they are revising it and trying to push it through again. I'm supporting an alternative plan that will keep our nation from going even deeper in debt, and I've been on TV and radio all week telling people about it.

We need everyone's help! 3 Steps to Change the Nation's Future

Follow the instructions below. Together we can change history.

1) Pray For Your Leaders

2) Pray for them to resist a spirit of FEAR and to embrace WISDOM. Even if you don't like them or agree with them, pray for them and tell them you are praying for them. There is a spirit over this problem that must be broken. Also, most of the media personalities are afraid as well and that is affecting their reporting. Pray for fear to be removed from them; they are making this worse.

Send the Common Sense Fix

3) Send The Common Sense Fix to your Representatives and Senators and tell them how you expect them to vote, and that if they put this nation in $700 billion of debt, that you will vote them out. It's their job to listen to us! (Whichever presidential candidate or political party that champions this plan from their leadership down will likely become the next president. That is because this plan fixes the crisis while going along with the wishes of the vast majority of Americans.)

1. First, read this page (PDF)

2. Next, copy the info on this page (text file)

3. Send it to your Senators and Representatives by copying and pasting the text in the web form you're sent to.

*Note: If their websites are down, that means we're making a difference! Keep refreshing the page until you get through. You can also go through Congress.org, though we don't endorse this site.

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Common Sense Plan Text

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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 steps:

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.

[Bruce Nunnally]

woops added the links to Senators and Representatives.

[Marika]

I was talking with a friend this morning at breakfast. He's a player of the commodities exchange, precious metals. His idea is: "Since the government wants to give away $750 billion dollars, what they should do is give everyone over the age of 18, $400,000 to do with as they please. Naturally, most people who have mortgages will pay off or pay down their mortgage, others will spend the money on a new car, or buy a new home, or some other big ticket item, some will put it into CD's, their kid's education, and on and on. Regardless of how it's spent it will circulate into the economy and THROUGH the banks and by the fact that it's circulating, it will rescue the banks and the economy. The reason the economy is stagnant is because consumers have run out of money and credit. No money to spend means the economy becomes stagnant. Instead of giving all that money directly to the banks, give it to the citizens and let the citizen decide how the money goes around."

I'll take my $400,000 in 50's and 100's, thank you.

[WarrenJ]

The imposition of the "Mark-to-Market" rule coupled with the repeal of the Glass-Steagle Act in 1989 (proposed by Sen. Phil Gramm ® and signed by WJC) set the stage for our current economic crisis. Whose fingerprints are on this? Can you spell C-O-N-G-R-E-S-S?

It's too easy to blame "Wall Street." They only did what was required of them at the point of a government gun.

P.S. Can I have my $400,000 in gold?

[WarrenJ]

Around 1991-1992 the Big Cheese at the Boston Fed said to the banks (I'm paraphrasing), "Youse guys need to lend money to poor folk who can't afford homes. Failure to do this will result in your prosecution under the Community Reinvestment Act!" Guess what happened?

Oh, that's right. We've already seen what happened.

Thank you Senator Phil Gramm. AssPerson!

[Marika]

The imposition of the "Mark-to-Market" rule coupled with the repeal of the Glass-Steagle Act in 1989 (proposed by Sen. Phil Gramm ® and signed by WJC) set the stage for our current economic crisis. Whose fingerprints are on this? Can you spell C-O-N-G-R-E-S-S?

It's too easy to blame "Wall Street." They only did what was required of them at the point of a government gun.

P.S. Can I have my $400,000 in gold?

At current market value that would be nearly 460 troy ounces of gold.

[WarrenJ]

The imposition of the "Mark-to-Market" rule coupled with the repeal of the Glass-Steagle Act in 1989 (proposed by Sen. Phil Gramm ® and signed by WJC) set the stage for our current economic crisis. Whose fingerprints are on this? Can you spell C-O-N-G-R-E-S-S?

It's too easy to blame "Wall Street." They only did what was required of them at the point of a government gun.

P.S. Can I have my $400,000 in gold?

At current market value that would be nearly 460 troy ounces of gold.

That would be a crapload of jewerly! :D

[Marika]

http://www.clusterstock.com/2008/10/bailou...at-happens-now-

Bailout a Done Deal, So What Happens Now?

Now that the government has been terrified into rubber-stamping the bailout, what happens now?

In our opinion, here's the most likely scenario:

* Hank Paulson & Co. survey the banking industry and decide who will stay and who will go. JP Morgan (JPM), Citi ©, Wells Fargo (WFC), and Bank of America (BAC) will stay. Goldman (GS) will probably stay. Morgan Stanley (MS) might stay. Everyone else in trouble could go. The government doesn't need to save all banks. It just needs to save some.

* Within a month or two, Paulson buys $250 billion of crap assets. He pays more than market value, but not an egregious amount more (because the public will be watching these early rounds). Over the next six months, he buys $700 billion of assets...and then he--or his successor--asks Congress for more money.

# Confidence improves modestly, but banks continue to hoard capital and credit markets stay tight. Loans stay expensive and hard to get. This keeps pressure on the economy.

# The credit crunch filters through to consumers: Credit cards, home equity loans, mortgages, car loans, etc., get more expensive, putting more pressure on consumers and forcing them to cut back further.

# The economic news continues to get worse: American consumers continue to pull back, housing continues to fall (as of July, the year over year declines were still accelerating), companies begin to cut back, which leads to layoffs--which puts more pressure on consumers.

# The global economy continues to weaken: Europe, Asia, and, eventually, emerging markets. This is already happen, and everyone else is later in the cycle than we are.

# The stock market continues to fall, as corporate earnings come under increasing pressure and hope for an early 2009 recovery fades. Analysts are still expecting huge growth in S&P 500 earnings for next year. These estimates will get cut by at least a third.

# The government enacts further measures to try to stop the fall in asset prices (stocks, houses)--including an expansion of the bailout plan--but these don't work. Governments always try to do this. They never succeed. All they do is delay the inevitable.

# A new round of white-collar prosecutions send a new posse of corporate villains to jail. Some will be guilty. Some won't. All will be hated.

# The government announces a new New Deal, finally investing in the country's infrastructure, in the hopes that this will stimulate the economy (which it will). Investments include broadband, green tech, wireless, physical infrastructure, et al.

# Eventually, asset prices will bottom: Housing down 40% in real terms, the stock market down at least 50%. With luck, this will happen by early 2010, so the recovery can begin. Warren Buffett loads the boat with stocks, but by that time, most people are too depressed (and poor) to follow him.

# Unlike Japan, we finally force our banks to write down assets as far as they need to be written down...and then recapitalize them. This is what we should have done in the current bailout, but we'll get it right next time (we hope).

# We gradually begin a long-term economic recovery, one in which consumers save a greater percentage of income, thrift and saving again become admirable qualities, we gradually begins to wean itself off international oil, and the bacchanalian decades of the 1990s and 2000s become an embarrassing memory.

# The stock market finally begins a new, long-term bull market, in which stocks once again return 10%+ per year. Unfortunately, most Americans will be so sickened by the stock losses they've sustained since 2000 that they'll miss many years of it.

[WarrenJ]

* Hank Paulson & Co. survey the banking industry and decide who will stay and who will go. JP Morgan (JPM), Citi ©, Wells Fargo (WFC), and Bank of America (BAC) will stay. Goldman (GS) will probably stay. Morgan Stanley (MS) might stay. Everyone else in trouble could go. The government doesn't need to save all banks. It just needs to save some.

Very interesting.

[Marika]

* Hank Paulson & Co. survey the banking industry and decide who will stay and who will go. JP Morgan (JPM), Citi ©, Wells Fargo (WFC), and Bank of America (BAC) will stay. Goldman (GS) will probably stay. Morgan Stanley (MS) might stay. Everyone else in trouble could go. The government doesn't need to save all banks. It just needs to save some.

Very interesting.

I think the biggest mistake the government is making is giving that money to the banks. That money will disappear and in six months we'll be right back where we are today, the bankers and Wall Street sticking their hand out looking for more money.

What the government would be better off doing is they should take that money and spend it into the economy as work programs. Rebuild our roads and bridges, build hospitals and schools and housing. Spending that money into the economy will control inflation and increase the value of the money. It will be real money entering the economy, not money created as debt which is what the banks have done.

[rek]

He who has the GOLD, makes the rules.... Does ANYONE REALLY think the average "Joe" wanted to change this country from the world's largest producer of goods into the world's largest consumer of goods? In other words, the "Free Trade/World Economy" ruse.

If you make something (Production), and in turn sell it, you MAKE money. If you make NOTHING, other than a sale, you GET money. Money is the same whether you make it or get it, BUT, just GETTING money is NOT sustainable.

Extending credit to UN-qualified buyers has masked the GIANT sucking sound. (R Perot)

The bedrock of America...American Dream...Home Ownership can't be sustained with junk paper.

"Outsourced jobs" IS lost capitol. The "Fed", like Wall Street, invents money out of thin air.

Key strokes, balance sheets, numbers in cyber space.....WHOOPS, where's the beef?

Consumer spending has slowed way down. Go figure....GAS, Food... Since the consumer dollar isn't going where it's "Supposed to be", "They" will just TAKE it.....Bailout.

It does seem to be a long way around the block, just to finally nail all the TAX Breaks that were due to expire.

I do think the boys and girls in Washington, knew all along what was going on. They knew enough to hold their tongue, as to not induce panic.....UNTIL, the time was right.

VOTE the incumbents OUT.

[WarrenJ]

Bottom line: it's NECESSARY for our government to do this. No, it's not good/smart. Neither is it bad/dumb. It is simply NECESSARY!

One question, however, remains: will the voters remember? Will our legislators be held to account? My guess is likely no.

These bastids need to be held to account. If you won't do it, who will?

C'mon folk, we NEED to punish these people!

And I'm not just talkin' about short-sheeting their beds.

[Marika]

Bottom line: it's NECESSARY for our government to do this. No, it's not good/smart. Neither is it bad/dumb. It is simply NECESSARY!

One question, however, remains: will the voters remember? Will our legislators be held to account? My guess is likely no.

These bastids need to be held to account. If you won't do it, who will?

C'mon folk, we NEED to punish these people!

And I'm not just talkin' about short-sheeting their beds.

I say let the capitalist system work. I don't like this socialism one bit. This is just the beginning. These banks and Wall Street will be back for more, sooner than we can imagine. Wall Street cannot sustain the levels now present. But every time Wall Street numbers go down a bit, everyone freaks out. Stocks are as overpriced as real estate, both are in need of some severe adjustments downward but no one wants to take the loss. This is going to end up in a tailspin and the economy is going to end up in worse shape than it is now.

[WarrenJ]

I'm philosophically opposed to the bailout. Businesses that made poor investments should simply die and pull the cover over themselves.

On rare occasions, however, it happens that a business is simply too large to fail. Had AIG been allowed to fail, over 90% of the world's airliners would have been without insurance. Ya think this is good? Obviously not. Aviation travel would have come to a complete stop. Can you even imagine the results of that? Really? Can you even begin to guess? World commerce would have come to an end. The 1929 Depression? Hey, just a mild hiccup on the historical scene.

Let's try to get real. It's important.

Your legislators are responsible for this.

[Marika]

I'm philosophically opposed to the bailout. Businesses that made poor investments should simply die and pull the cover over themselves.

On rare occasions, however, it happens that a business is simply too large to fail. Had AIG been allowed to fail, over 90% of the world's airliners would have been without insurance. Ya think this is good? Obviously not. Aviation travel would have come to a complete stop. Can you even imagine the results of that? Really? Can you even begin to guess? World commerce would have come to an end. The 1929 Depression? Hey, just a mild hiccup on the historical scene.

Let's try to get real. It's important.

Then I guess a company like AIG, with it's awesome responsibilities, should have been a bit more responsible in how they handle money. These companies are run by people who are supposedly the best leaders out there. So how is it that every one of them made the same mistake? The only mistake I see that everyone made is that they all got greedy and thought it would go on forever and ever. They hung up the entire idea of making money the old-fashioned way, through hard work and conservative investments and instead, they adopted the fast track way of making money by playing it loose and fast. And now, here we are the taxpayers, having to clean up after them. As an afterthought, if I ran my household the way the government runs its household I would have been out on the street a loooooooooong time ago. AIG and all these other companies, as well as Wall Street need to be held responsible for their actions. I hope they at least make a good effort of paying back the taxpayers someday. People were mislead from the top down. I hate giving socialism to the rich especially now that I see first hand that they certainly DO NOT know how to handle money.

ALSO, the politicians, such as CLINTON, but there are others from both sides of the house, who initially changed all the laws and removed all the safeties in the laws, which ultimately allowed this to happen, should be hung.

[WarrenJ]

I understand your frustration; I share it.

However, had it not been for the repeal of the Glass-Steagle act and the imposition of the "Mark-to-Market rule, we just wouldn't be having this discussion.

[Marika]

I understand your frustration; I share it.

However, had it not been for the repeal of the Glass-Steagle act and the imposition of the "Mark-to-Market rule, we just wouldn't be having this discussion.

In all fairness, I added an additional paragraph to my rant. Shakespeare was right, "The first thing we do, let's kill all the lawyers". (Lawyers = politicians)

[Bruce Nunnally]

For $44M I will be happy to absolutely guarantee against any losses from any loans, subprime or not, incurred by the insured.

I won't be able to pay off if the loans default, but what's the chance of that, anyway? Send me a check, then give out all the subprime loans you want, risk free, for as long as you keep sending me checks.

Note: if something seems too good to be true, usually it is.

Two is not larger than three, even for very large values of two.

[WarrenJ]

Happily, AIG did not handle any of my funds.

Neither did Clinton.

[WarrenJ]

I understand your frustration; I share it.

However, had it not been for the repeal of the Glass-Steagle act and the imposition of the "Mark-to-Market rule, we just wouldn't be having this discussion.

In all fairness, I added an additional paragraph to my rant. Shakespeare was right, "The first thing we do, let's kill all the lawyers". (Lawyers = politicians)

Oh stop being fair. I just hate that crap!

[WarrenJ]

For $44M I will be happy to absolutely guarantee against any losses from any loans, subprime or not, incurred by the insured.

I won't be able to pay off if the loans default, but what's the chance of that, anyway? Send me a check, then give out all the subprime loans you want, risk free, for as long as you keep sending me checks.

Note: if something seems too good to be true, usually it is.

Two is not larger than three, even for very large values of two.

Could I just borrow $12 bucks from you until Thursday?

[WarrenJ]

Could I just borrow $12 bucks from you until Thursday?

I guess not.

[WarrenJ]

The Bailout Bill was originally 3 pages in length. Now it's 451 pages. That's our government at work. It no doubt inspires something; confidence is not on my list.

http://news.yahoo.com/s/ap/20081001/ap_on_...down_bill_grows

[WarrenJ]

I'm philosophically opposed to the bailout. Businesses that made poor investments should simply die and pull the cover over themselves.

On rare occasions, however, it happens that a business is simply too large to fail. Had AIG been allowed to fail, over 90% of the world's airliners would have been without insurance. Ya think this is good? Obviously not. Aviation travel would have come to a complete stop. Can you even imagine the results of that? Really? Can you even begin to guess? World commerce would have come to an end. The 1929 Depression? Hey, just a mild hiccup on the historical scene.

Let's try to get real. It's important.

Then I guess a company like AIG, with it's awesome responsibilities, should have been a bit more responsible in how they handle money. These companies are run by people who are supposedly the best leaders out there. So how is it that every one of them made the same mistake? The only mistake I see that everyone made is that they all got greedy and thought it would go on forever and ever. They hung up the entire idea of making money the old-fashioned way, through hard work and conservative investments and instead, they adopted the fast track way of making money by playing it loose and fast. And now, here we are the taxpayers, having to clean up after them. As an afterthought, if I ran my household the way the government runs its household I would have been out on the street a loooooooooong time ago. AIG and all these other companies, as well as Wall Street need to be held responsible for their actions. I hope they at least make a good effort of paying back the taxpayers someday. People were mislead from the top down. I hate giving socialism to the rich especially now that I see first hand that they certainly DO NOT know how to handle money.

ALSO, the politicians, such as CLINTON, but there are others from both sides of the house, who initially changed all the laws and removed all the safeties in the laws, which ultimately allowed this to happen, should be hung.

To quote financial expert Bob Brinker, "The Glass-Steagle Act (1933ish) ran like a Swiss watch for over seventy years." Repealing it in 1989 was simply a piece of insanity!

The "Mark-to-Market" rule forced the bankruptcy of otherwise sound institutions.

And Sarbanes-Oxley? Please don't even get me started. Crap on a shingle. Now this is a piece of junk that really needs to be repealed. Yesterday.

Your lawmakers at work. Geeze!

[BodybyFisher]

The morning the Lehman and WAMU news hit the airways, FORMER FED CHAIRMAN Greenspan was on TV at 9 AM, when I turned the TV on. Why I wonder? I believe HIS policy of historically low interest rates fueled this problem. The low rates began around 95, and at some point they needed to rise, but he was trapped. Housing price appreciation was falsely fueled by low interest rates, the lower the interest rate, the higher the payment you can afford, so the housing price can be higher also. If the rates increase it begins to kill appreciation and demand. This extended to commercial real estate also. People invested in real estate for the wrong reasons. Rates needed to increase as the risk increased.

I was doing work for WAMU. I don't want to get technical, but when the cap rates on NYC apartment buildings dropped below 5%, it no longer made sense, as there was negative return to the equity position. A cap rate is the net operating income (NOI) divided by the property's value. Cap rates dropped below the mortgage interest rate causing equity returns to drop to nothing. I spoke to many colleagues about this phenomena and they all felt the same, they were uncomfortable. Appraisers are suppose to MIRROR the market, yes, that is true, BUT when the MARKET becomes ILLOGICAL, they need to RAISE a RED FLAG. When I indicated the negative appreciation in my appraisal to WAMU they called me screaming for me to REMOVE the wording from my report, that it was a SERIOUS mistake, and to get them REPLACEMENT PAGES immediately. They told me I was to MIRROR the MARKET. I said yes that is true, UNTIL it becomes ILLOGICAL, they told me, FUTURE APPRECIATION will save these investments! HUH? These are RENT CONTROLLED/STABILIZED buildings, the cap rates are ALREADY below 5% where do you think the APPRECIATION is going to come from? They did not care, demanded the wording to be taken out of the report and STOPPED giving me work. I ask, WHERE IS WAMU TODAY?, and I am happy about their demise! Read this article and you will see the I had it NAILED, notice the reference to CADILLAC (I kept this on topic):

More city apartments facing foreclosure

Housing advocates say rental income can't support inflated prices, and several apartment complexes in the city are facing an increasing risk of foreclosure.

A growing number of apartment buildings in the city are at risk of going into foreclosure, making thousands of tenants the next potential victims of the mortgage crisis, housing activists warn.

Nobody knows precisely how many tenants are at risk, but advocates say a minimum of 580 buildings, containing 40,000 units, have one or more factors that could lead to default.

Over the past four years, private equity firms have gobbled up at least 90,000 affordable-housing units in the city at inflated prices and in highly leveraged deals with the hopes of raising rents and maximizing profit, according to the Partnership to Preserve Affordable Housing.

But the debt service on many of the buildings is not being supported by rental income because the apartments are still governed by regulations that limit rent increases. In many cases, owners envisioned unrealistic rent growth, but lenders—caught up in the same free-flowing credit frenzy that led to rampant single-family home foreclosures—made the loans anyway. They sold the loans to investment banks, which packaged them into mortgage-backed securities. NO SHITSKY SHERLOCK....

“If you want a Cadillac, buy a Cadillac,” says Dina Levy, project director of the Urban Homesteading Assistance Board. “Don't buy a Chevy and try to turn it into a Cadillac. You're not going to be able to do that.”

Housing advocates are increasingly worried that if the loans go into foreclosure, the tenants in these buildings will suffer. Maintenance levels typically go down and capital improvements are put on hold when properties enter the foreclosure process.

Some real estate experts say advocates' fears are overblown. “They are making assumptions when nobody knows whether there's any truth to it,” says Steven Spinola, president of the Real Estate Board of New York. “We're going through a period when money is not as available as it has been, but that doesn't mean these projects are in danger.”

Apartment complexes like Riverton in Harlem and Stuyvesant Town on the East Side have received much of the attention for their financial troubles, as new owners have had a harder time upping rents than expected. Last week, Standard & Poor's put three loans tied to Stuyvesant Town's mortgage on a watch list for downgrading, and last month, Riverton's owners indicated they were on the verge of defaulting.

One complex already on the brink is Savoy Park, a 1,802-unit development in Harlem that has been placed on a watch list. In 2006, Apollo Real Estate Advisors and its partners bought the seven buildings, which were then known as Delano Village, for $175 million. A year later, Apollo refinanced the property, bringing its total debt to $367.5 million, according to credit rating agency Realpoint. The agency says the risk of default on that loan is now “moderate to high.”