I received an email today from Dave Ramsey, the personal financial consultant and author of a few debt management books and video courses. As many of you know, we just finished offering his Financial Peace University's Debt Management Course and let me tell you, it was transformational for all who attended. My personal debt is finally manageable and I have already paid off significant debt, with the rest on a very do-able pay-off plan plus have a Savings Account with over $2000 in it.
Anyways, Dave Ramsey just sent an email with his recommendation for the financial mess on Wall Street. You can read online his entire proposal. He is urging those who received it to forward it onto our senators and lawmakers. It looks pretty sound although I really have no idea about what the particulars actually mean.
So I am posting it here for you to look at and see if you think it's helpful.
The Common Sense Fix
Years of bad decisions and stupid mistakes have created an economic nightmare in this country,
but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following threestep Common Sense Plan.
a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance.
Government-insured and backed loans would have an instant market all over the
world, creating immediate and needed liquidity.
b. In order for a company to accept the government-backed insurance, they must do two
1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while working with the borrower—again limiting foreclosures and ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.
c. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
a. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
b. This move creates patience in the market and has an immediate stabilizing effect on
failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
a. Remove the capital gains tax completely. Investors will flood the real estate and stock
market in search of tax-free profits, creating tremendous—and immediate—liquidity in
the markets. Again, this costs the taxpayer nothing.
b. This move will be seen as a lightning rod politically because many will say it is helping
the rich. The truth is the rich will benefit, but it will be their money that stimulates the
economy. This will enable all Americans to have more stable jobs and retirement
investments that go up instead of down.
This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.
What do you think? Do you think this can work or is his Reagan-like 'trickle down' investment solution a thing of history not worth repeating?