In a typical silly, meaningless moment, one of the pundits helped average Americans relate to this 700 billion dollar bailout by letting us know that it is enough money to buy 2000 McDonald’s Apple Pie desserts per American. And, while it is a childish and silly comparison to make, let’s think about it for a minute. Would I, as an American, rather give Wall Street and large businesses who should have known better 700 billion dollars, or would I rather have 2000 apple pies? You know, I’ll take the apple pies, please.
Back when the 100% financing on homes first started in the US (yes, you could actually borrow 80% from one lender and the remaining 20% from another), I questioned the sanity of it. After all, does it really make sense to give someone a $150,000, $300,000, or $700,000 asset with no skin in the game? If none of my money is in my house, then suddenly if I walk away my credit is the only thing going. I haven’t lost any money and I can rebuild my credit, right? Then I started to hear about these wonder products, the Adjustable Rate Mortgages (ARMs). Ooh, now that’s a great idea. I’ll take out a mortgage for more house than I can actually afford. But, because of this magic adjustable rate mortgage my house payment now will be smaller. And, interest has been low for so long, surely it’ll stay that way, right? Can we say, unable to afford our house payment in the blink of an eye?
When El 3atal and I bought our first house, we saved money and found a way to come up with the minimum down payment to get into the house. Our house payment was well below the “formula” (we were approved for a house up to say $225,000, but chose to buy a house for $150,000). We found a house payment that we were comfortable making. When we outgrew the house because we were expecting ButterBean and both working from home, we again bought a house far below what the bank said we could afford. And this was before the days of 100% financing and ARMs. And, was I ever glad we did. I got laid off and when I found a new job after about 6 months of unemployment (which is like 6 pennies, honestly), it was at a significant paycut (better than 10%). Thank you, George Bush. Then it happened again 2 years later. New job, new paycut (twice in 3 years, Thank you SO MUCH George Bush). But still, we were living within our means and saving for our children’s education and our own retirement future.
During these same days, we saw reports of all these people buying houses they knew they couldn’t afford on a fixed rate mortgage. So, they took a risk, a big risk, on these ARMs. They bought more house than they could manage. Let’s be frank, they got a bit greedy wanting the benefit without doing the work for it – the hard scrimping and saving that Americans have always done to afford that first house (or second, or third). And now, I should bail out the companies who were handing out money like it was candy. I should bail out the companies who bought these bad mortgages because they wanted to make money on them. And they did… they did make money on them. Beyond that, I should bail out these companies so that they can go on operating exactly as they did before. Same guys in charge who apparently, despite all of their fancy degrees and experience can’t see what I could… That’s right, I, a girl from the small-city South who never claimed to be good in math could tell that the mortgages were a bad idea and trouble waiting to come find them. But they couldn’t?!
So, here’s my bailout proposal (yeah, you knew I had one, didn’t you?):
First, all companies that are taking advantage of the bail-out will have all new management. Anyone in the management structure at the VP level or above will leave with no further compensation than they have already received (no bonuses, no packages, nothing). The cost of the bail-out (including administrative costs) will be taken out of the profits for the company under its continued operations. It will have a loan, just like the affected homeowners.
Second, new mortgages would be issued to forestall further bankruptcy and mortgage defaults. These mortgages would extend the payback time and require that all of the original loan be repaid with an additional fee for the costs of the bail-out. If the borrower goes into bankruptcy, they are barred from receiving any sort of loan or mortgage secured in any way by government backing. Period. Ever.
Finally, the rules surrounding the financial markets will be reviewed. New rules will be put into place to ensure that this type of debacle does not occur again. A watchdog committee will be formed again with a representation from various industries (and at least one person with enough common sense to see that the loan practices of the past were just plain dumb).
Bottom line, I would never give some guy who goofed up big time 700 billion no strings attached dollars. But, some action must be taken. Bailing out companies and allowing them to continue taking profits and making the American public eat their losses is, quite simply, un-American. But, it does no one any good to continue having large institutions failing and weighing down the entire world. So there’s the MommaBean plan. And, while no one will listen to my thoughts on the topic (after all, I’m no expert), maybe someone will come up with a similar plan on their own. Maybe if they took a step back and decided to balance the interests of the American public and realized that, frankly, it’s not our fault so we shouldn’t be paying for it, they’d come up with other, better plans… At any rate…