US government has readied $700 Billion to help the distressed after the mortgage write down Typhoon which has hit the economy. A typhoon batters everything up but still doesn't make things vanish into thin air. Similarly money has gone missing but has it vanished into thin air or is it lying somewhere ? Who has lost and who has benefited ? More importantly, is it the distressed who are really getting the support with this bail out package ?
I think the bail out package should work like this :
- Anyone who wants to sell their home should be able to sell it to the government for the price they paid for it net of mortgage amount outstanding.
- Government can then :
- either pay the bank the outstanding mortgage and fully own the property. This will release the funds for the bank so that they can be used elsewhere.
- Or can continue to mortgage the house with the bank making the repayments and keeping the bank's credit book healthy.
By doing this government will be helping the person on the street who is struggling to make the monthly payments on an asset which is worth a fraction of what has cost him/her. Also the bank which has this risky asset on the books will get help by removing the risk of default.
This will make the common person free from worry. That itself is enough power the economy and bring it back on rails. I see no reason that the support should only go to banks.
There will question as to what the government will do with the real estate it is acquiring. Simple, they could sell it at the prices people can afford!
