Financial Bailout Or Rewarding Excessive Speculation
Much has already been written about how the government support for financial institutions is to be used in getting our economy thru this difficult time. Corporations who are privy to the government aid need to reign in the reward trips and golf junkets if there is going to be public support for this effort. But what about the person who bought more house than they could afford or even bought multiple houses because they planned to make a quick profit and flip the second and third home? Is it good policy for us to bail out people who have leveraged their home in hopes of making a bigger profit compared to the conservative home buyers who maintained a higher equity and borrowed less money to own their home?
The sentiment of most people is that we should not be rewarding either large corporations or individuals who have used excessive leverage in an attempt to make large profits. In actuality, we are already doing just that with some large corporations. But the biggest problem we have as individuals in the country is that many people owe way too much on their homes and their savings is being depleted so that they have no wiggle room economically. There needs to be some program and some block of money that can offer alternatives to just letting people walk away and trash their homes. Let me illustrate:
A. Home buyer borrows $200,000 (floating rate loan) to buy a personal residential home & this represents 100% of purchase price
B. Home has dropped in value to only be worth $165,000 and the interest rate on the original $200,000 has skyrocketed to over 10%
C. Many people are trashing their homes, ripping out the copper or salvageable assets and selling them leaving the home worth much less than $165,000
Solution: Offer the homeowners a new government loan for $165,000 at a 10 year fixed rate of 6%. Exchange the $35,000 forgiveness for community service time of 100 hours per year for every $10,000 forgiven. In this example, the homeowner would owe 350 hours of community service to be paid over four years.
Is this fair to the rest of society? It seems to me that we are going to have to swallow hard when we see how the bailout funds are going to be spent in the next few months. At least, if we saw people being able to salvage the roof over their heads, that would go a long way toward justifying our financial support.
Isaiah 5:15-16 (RSV) "Man is bowed down, and men are brought low, and the eyes of the haughty are humbled. But the Lord of hosts is exalted in justice, and the Holy God shows himself holy in righteousness."
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