$700-Billion Mortgage Bailout
The home repossessions are at an all time high and the economy is in the dumpster; it is time to scream and employ the old "scare-tactic" that seems to work every time the President wants something!!! The first move is always to identify the person or persons responsible for this economic fiasco i.e. the Federal Reserve Chairman (both present and past), or maybe former President Clinton is responsible or surely the Secretary of the Treasury had something to do with this mess! Moreover, laws must be passed to control these "evil-doers"!
Is there not a single Congress-person who has applied for a loan to buy a house?! The lending requirements are simple enough. A person must earn three times the loan payment and the bank requires two months of employee check stubs, bank statements and a credit check. If you are self-employed, you must also provide income tax returns for two years. But it does not end there. The average loan requirement for a personal residence is 10% down, if you are an investor it is 20% down and commercial property requires 30% down. So the real question is how did our lending institution get into this mess in the first place?
These big time lenders may scream that a massive conspiracy by individual home owners to lie and cheat their way into interest only, or three year fixed with negative amortization - all the while knowing they would be unable to make the mortgage payment in three years when it goes to full regular payments. This is absolute nonsense! The bank has the hammer here - it is their duty to verify loan information and they have all the tools to do it!
So, if you are looking for someone to blame, how about taking a peek at the very people you are trying to "bail out" with this massive $700-billion package!
Please help me understand this $-multi-billion scheme. Are you folks suggesting that "we" (hereinafter called taxpayers) should buy-out real estate secured notes (of property already foreclosed and in the hands of lenders) at a discounted rate. . . and, as suggested by some colleagues, hold on to these notes until the real estate market goes back up, then re-sell at a profit? Some suggest this bail-out, including credit card and automobile debt, would allow these banks and lending institutions to offer credit and get the economy going again - wow! Does this mean there currently is no one in the entire country willing to loan money to qualified investors on secured property? Clearly this is BS! It appears this whole concept is some kind of over-blown scare campaign to take care of "the good ole boys"!
And why on earth would we give this $700-billion to the Secretary of the Treasury? Isn't there anyone in Congress who is aware the Federal Government has an agency - the Small Business Administration (SBA) - who currently processes loan applications? So why not expand an existing department and by-pass this massive bailout of lenders who failed to follow their own rules?! Additionally, this would by-pass any questions about Golden Parachutes!
The best idea would be to set up a home loan operation out of Social Security Funds. According to the 2007 Annual Report (covering 2006) there were/is excess funds totaled more than $2-trillion - drawing interest on government bonds and notes of 5.5%. This, of course, is part of our national debt - so why not pay off part of this debt by giving the Social Security Trust Fund this $700-billion; thus reducing out national debt at the same time you are creating more debt.
The S/S Trust fund could then provide secured financing to fill the void left by our lending institutions who have managed to create the current mess.
Step 1. Obviously, Social Security - the Agency and the Trust Funds - must be made independent of the General Budget; which means that the U.S. Treasury cannot take these funds and issue notes as payment! This agency should be empowered to invest all surplus funds into "secured" investments i.e. real estate loans or commercial secured financing which would generate at least a 5.5% return or more.
Step 2. The government must redeem their notes and return cash to the Social Security Trust Fund. Obviously, this cannot be done all at once; however, it is reasonable to expect that the annual interest ($2-trillion @ 5.5% interest = $111-billion) should be paid in cash each year along with a percentage of the principal in accordance to budget constraints.
Step 3. According to this same 2007 Annual Report, there will be a surplus each year (income will exceed out-go) until 2017 or 2018; one can only hope this surplus will generate an addition $1-trillion in trust funds which would generate a total interest income of $167-billion - this is still not enough to handle the impact of the so-called "baby-boomers", but the situation is not all that bleak provided Congress makes a move now to increase funds by increasing the employer-employee contributions from 12.40% to 14.4% or by at least 2%. The object is not to break even! The object is to continue to have an annual surplus because eventually the surplus will generate enough interest income to allow a decrease in retirement contributions.
Step 4. Eventually there will come a time when each individual contributor to the system will be able to withdraw his retirement based upon his own contributions. I am enclosing a Social Security Table base on 5.5% return showing potential retirement income returns based on Annual income of $40,000. for a period of 40 years. There is also an option to stop payments after 30 years (this would tend to make older employees more desirable because the employer would no longer have this expense) and allow his fund to increase in accordance to compounded interest. As you can see, after 30 years, an employee could determine when to retire based upon how much income he wanted to receive.
I know that you have access to actuarial information which exceeds my poor attempts in this regard, but the point I am trying to make is still the same. President Bush has viewed this problem and wants to abandon Social Security in favor of private investments. This makes all those seniors who have contributed to this system for all those years "suckers" and places emphasis upon the business acumen and integrity of "big business" (like for example Enron) to guarantee a legitimate retirement - ridiculous!!!
Social Security Table
Investments @ 5.5% Return
Average income of $40,000.00 per year
Employee withholding OASDI = 12.4 % (Medicare 2.9 ignored)
Employee/employer contributions = $4,960.00 per year.
Administrative costs 1% = $ 49.60 per participant
Balance to be invested: $ 4,910.40 @ 5.5% annual return - compounded.
Year amount incl. interest
0 $ 4,910.40 + 270.00
1 5,180.48 + 4,910.40 + int.
2 10,645.88
3 16,411.88
4 22,495.01
5 28,912.71
6 35,683.39
7 42,826.45
8 50,362.38
9 58,312.79
10 68,139.09
11 77,073.02
12 86,492.51
13 96,430.07
14 106,914.20
15 117,974.96
16 129,644.06
17 141,954.96
18 154,942.96
19 168,645.30
20 183,101.27
21 198,352.32
22 214,442.17
23 231,416.97
24 249,325.38
25 268,218.75
26 288,151.26 If Interest only
27 309,180.06 after 30 years.
28 331,365.44
29 354,771.02 Amount + Interest only
30 379.463.90 379,463.90 + 20,870.52
31 405,514.80 400,334.42 + 22,018.40
32 432,998.68 422,352.82 + 23,229.41
33 461,994.08 445,582.23 + 24,507.03
34 492,584.23 470,089.26 + 25,854.91
35 524,856.84 495,944.17 + 27.276.93
36 558,904.44 523,221.10 + 28,777.16
37 594,824.66 551,998.26 + 30,359.91
38 632,720.49 582,358.17 + 32,029.70
39 672,700.59 614,387.87 + 33,791.39
40 714,879.60 648,179.21 + 35,649.86 = 37,665.60 Int. Beginning year 41
Annual Int. @ 5.5% = 39,318.38 or $3,138.80/month
Or $3,276.54/month