HERE'S A PROPOSED BAILOUT PLAN

(1) Mortgage Cram-Downs: It is fascinating that no one is talking about this in the current bill. One of the first things that got thrown to the wayside is cram downs. Mortgage cram downs are the quickest thing that can be done right now to help homeowners in trouble. How so? Let us say in bankruptcy a judge looks at a borrower who has a $100,000 valued home with a $90,000 1st home mortgage and $25,000 in total unsecured debt. The judge can cram down the unsecured debt to $10,000 thus matching the total assets of the borrower ($100,000 home) to the total debt ($90,000 1st mortgage + $10,000 unsecured debt). Why was this removed? Credit card companies and 2nd note mortgage holders would get wiped out with this legislation. They will not volunteer for this since there is nothing in it for them. Clearly they would rather unload the debt to you instead of realizing the loss from their imprudent lending.

(2) Mark to Market Similar to Housing and Economic Recovery Act of 2008: It is amazing that the new legislation actually wanted to halt the mark to market accounting rules. What this did is gives an out for institutions to once again hide the sausage until they unload it onto the public. What needs to be done is what was proposed in the Housing and Economic Recovery Act of 2008. Lenders that want to participate can do so by doing the following:

*Take a current appraisal of home

*90% offer from government of current appraisal

*One-time 5% fee to build up loss fund

*Homeowners participate in equity sharing with government tiered over 5 years

So how would this work? Say one of those craptastic WaMu loans made at the peak for $600,000 is now in trouble. The current home value is $400,000. Should JP Morgan wish to unload this loan, they would get $340,000 and the borrower now has a reduced loan. The borrower now has to share any equity gains with the government for the next X years. This of course will mitigate some of the moral hazard problem. Everyone wins. JP Morgan has already estimated that they will write down $31 billion in loans from the WaMu garbage can so at least they get something here. Borrowers get to stay in their home and the government at least has a way to recoup some losses later.

(3) Zero CEO Compensation on Institutions that Participate: This one is simple. CEOs shouldn’t get one penny for participating in the bailout. If they have managed to run their company into the ground and are asking for taxpayer assistance, we get to set the terms. They are lucky. In fact, we should give them an incentive that should they cooperative for the next few years they won’t be prosecuted to the fullest extent of the law when we have our 1930s perp walk sessions which will happen. CEO compensation? Are you freaking kidding me. How was this even in the bill?

(4) Massive Enforcement and Regulatory Oversight: Agencies like the former OFHEO and the SEC have been so stripped down and starved over the past decades that they simply had no power over a multi-trillion dollar market. First, we need to resurrect a similar law such as the Glass Steagall Act that was repealed by the Gramm-Leach-Biley Act in 1999. You can almost pinpoint the moment the stupid toxic CDO and CDS markets exploded:



*Source: Sudden Debt

For nearly an entire decade, this market went unregulated. Now that things are blowing up they don’t want to tell us where they will use the $700 billion and with utmost arrogance want to keep this market in the dark. They created their own nightmare. The reason for market transparency is that at any given time, you should be able to unload your assets and there will be a market to sell into. Those people that wanted deregulation got exactly that in a black and chaotic hole. Now they want to impose rules on the jungle of debt. With such a hidden world and no transparency, no one really knows what some of these assets are worth in the real world. Given the stunning amount of this out there, don’t you think the public has an obligation to have leaders explain what is going on before they start dumping their money into the abyss?

(5) Liquidation of Lenders: Finally, there are some pathetic lending institutions out there. They need to fail and the quicker the better. We are already seeing some of this. The big are eating the weak. JP Morgan Chase eats up WaMu. Wachovia gets swallowed up by Citi. You get the point. The reason this needs to accelerate is once the market stabilizes, these institutions will once again inject liquidity. Yet this will be a slow process. Otherwise, more crap will hit the market. How so?

Well in the midst of all this insanity Wachovia was bought out by Citi in what is another government bailout. They won’t call it this but it is absolutely a bailout. First, Citi bought out Wachovia with the full knowledge that they will only absorb $42 billion in losses from the Wachovia mortgage portfolio. The problem? Wachovia with their smart buy move of uber toxic mortgage all-star Golden West has approximately a portfolio of $120 billion in pay option mortgages mostly here in California. Who will assume losses above and beyond the $42 billion? The FDIC. How much does the FDIC currently have? About $43 billion.

Please continue contacting your Representatives since this battle is not over. For info on contacting RINO's Gilchrest and Castle, see:

http://sbynews.blogspot.com/2008/09/we-better-wake-up-wayne-gilchrest-now.html