Why should the government want to save the failing institutions and buy the bad loans, rather than just pump money into the economy Take the same $700 Billion, and make the government an investor. The money can be used for government loans for mortgages or business loans at a set interest rate (which the government can set and adjust when the market changes) with realistic qualification requirements. The lenders qualify the borrowers and make the loans. The lenders get the funds at a fixed amount lower than the actual loans. For example:
Wells Fargo creates a mortgage to a qualified borrower at 6%. Wells Fargo gets the funds from the government and agrees to pay the government back the loan plus 1%. As long as the borrower satisfies the qualification requirements that are set, the government assures the loan (i.e., Wells Fargo has no risk and can make 5% on the loan). This is a super deal for lenders, so they will go through the red tape to get the loans. Money will quickly get into the market, which will allow real estate values to stabilize and increase - making the existing bad loans less bad. This is also not a bailout, so Main Street would support it.
This would mean that companies will continue to fail and homes will get foreclosed, but it addresses the challenges in the economy today and works toward a remedy for the future. Plus it is not creating additional deficit for the government.
Let me know what you think.
Vicki Porter
Porter House Realty
Denver, Colorado
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