A way out: Indiscriminate Refi + BK Law Change

Discussion in 'Economics' started by scriabinop23, Feb 1, 2009.

  1. Just playing around with ideas.

    Problem #1: Banks don't know how to value loan assets.

    Solution: US Govt offer a 1 time refi program. Everything at 3 or 4%. Indiscriminate refi. They will pay your old loan(s) off no matter if you are underwater or not, no matter what your current income is.

    For all new loans, keep standards where they are (20% down etc) but loan at 3 or 4%.

    Same goes for commercial real estate. They will extend loans for balloon structures coming up for another decade on better terms.

    Suddenly as a result of this, all asset backed securities are paid off at par. This will more than likely recapitalize the banking system effectively, increase aggregate demand (more disposable income for borrowers), reset derivatives related to asset backed securities, recover housing, and be a balanced way to redistribute $$$ back to the people -and- banks - maybe somewhat politically acceptable.

    Caveat - to fix perverse incentives that might result from this: BK laws change. Your debt now follows you for 15 years. Incentive to foreclose goes down. In fact, maybe BK should come with a community service + public works penalty. ie if you go BK, you MUST serve in the military, build bridges, work at a hospital caring for elderly, etc for a fixed portion of time (ie 2 years). Better yet... every other weekend for 4 years. That way they still can keep their main jobs, and it doesn't turn into a socialist job handout (nor do we have to pay for it). Deadbeats need to pay their fair share. Perhaps their weekend labor can be resold to the private sector for a slightly cheaper price (so the govt can actually collect revenue off its BK biz). Single BK parents' children can be taken care of by other BK parents in a monitored situation, to keep costs low.

    Its inflationary, but I figure the BK law will be the moral code to balance out what may be potentially screwed up with it.

    Also, over time, these policies will self evaporate the additional money supply they create. The BK laws/penalties will discourage speculation on margin, and the payoff of this govt refi boom will evaporate the one time massive increase in money. So perhaps not as inflationary as it might appear.