More on the bailout...

Like a lot of people (though apparently not all of Congress), I've been thinking about the bailout and trying to get my head around numbers approaching trillions of dollars. It's not easy. The amounts of money we're talking about are inconceivable, really. The richest people in the world have more money than they know what to do with...and we're talking about hundreds of times more.

The other day, I was talking with a colleague about it. He said that he thought everyone ought to get a $10k tax credit. That, he said, would be fair. Giving money only to those who need it, would not be. Perhaps that's true, but what's the goal here? Is it to be fair, or is it to get the economy back on track?

I don't think anyone would argue that it's anything other than to get the economy back on track. Life's not fair, so let's quit talking about the bailout as if that's one of the goals. We need to stop the bleeding and put whatever resources necessary to do so. If you cut your arm, you wouldn't also bandage your leg "to be fair."

While it might be more personally satisfying (and politically defensible) to throw all those responsible for this mess in jail (assuming we can decide who that is), it won't solve our problem. While it might be more personally profitable (and politically defensible) to give everyone a handout and call it a "stimulus," that won't solve our problem either.

The problem is that people are losing their jobs and their houses and that's causing a ripple effect that ends up creating a positive feedback loop. If people can't afford to buy stuff, the businesses selling stuff cut jobs. This creates more people who can't afford to buy stuff, which creates more business that have to cut jobs. This isn't just about cars!

Here's my proposal, though since the Senate and the House agreed on a bill today, it's probably too late... The government needs to get into the mortgage business, but with some pretty interesting terms:

1) ANYONE (regardless of income or foreclosure status) can refinance the mortgage on their primary residence, or purchase a home that is to be a primary residence.

2) The monthly payment won't be more than 40% of the family's income...ever! The payment will adjust annually based on the previous year's tax return.

3) The interest rate will be fixed and pretty low (say, 4%), but the duration of the loan can be as long as necessary to keep the payment low.

4) Mortgage interest for anyone on this program is NOT tax deductible. This should discourage anyone from using this program who doesn't really need it.

5) Capital gains tax when someone sells a home financed with this program is double what it normally would be. Again, don't want to encourage anyone who should have a better option.

6) Anyone who loses their job doesn't have to make payments for as long as they qualify for unemployment benefits. The principle of the loan will go up, so it's not a completely free lunch. The goal here is to prevent foreclosure, which defeats the purpose.

It's not perfect and it's not fair, but it's better than a hand-out. While I don't always agree with the IMF's methods, I like their philosophy: We'll give you money, but it's going to hurt. I hate thinking that some people are actually happy to receive bailout money. I think my proposal will at least make people who may be on the fence think twice, and let people who are doing fine feel better about it...