Economy: bad. Fix: Worse?
Dave Ramsey, the personal finance radio and TV show host, thinks so. Rather than simply buy all $700B worth of bad assets, Dave suggests a 3-part plan (PDF). Briefly, his suggestions are:
1. Provide FHA-style insurance for all subprime mortgages. This would cost a much more palatable $50 billion or so. Companies that receive this insurance would have to modify subprime loans 3+ months behind so they’re on a 6% fixed, and cancel all “golden parachute” CEO severance plans.
2. Remove the Sarbanes-Oxley Mark to Market rule for subprime Tier III mortgage-backed bonds & securities. In many cases, mortgage-backed bonds are trading at far less than the value of the houses that collateralize them; this regulatory change, which could be temporary, would solve that problem and allow these bonds to be traded at a value closer to their actual long-term (not fear-driven) value. The SEC may already be making this move as of today.
3. Eliminate capital gains taxes to spur investment.
I think #3 is a bit opportunistic and would (contrary to what Ramsey says) cost taxpayers (particularly those of us who aren’t wealthy) a great deal of money, but #1 and #2 make a lot of sense to me.
What do you think?
if the problem is liquidity, insurance does practically nothing.
David - the liquidity comes from investors, whose confidence is bolstered by the insurance. There’s no shortage of money out there waiting to be invested; it’s just that investors are holding back because the markets are unstable.
I think insurance would make a big difference, though it’s certainly not the only action that should be taken.