Sunday, September 28, 2008

My plan to resolve the mortgage crisis... ugly, but effective

I believe that mortgages are a symptom, and not the real problem. Trust and transparency allow us to have expections that actually get met. Nobody knows what Paulson will do... which is going to make things worse, regardless of his actions. 

We have a solution that's called the Bankruptcy Courts The process of Bankruptcy won’t have much (if any) stigma once the wave hits… people will be able to walk away from houses they shouldn't be in, and those that gave "home equity" loans to people based on inflated property values were taking a risk that shouldn't be rewarded either.

I firmly believe that the capital markets will not "sieze up" as the personal savings rate in the US has gone UP THROUGH THE ROOF in the past few months, people are saving cash like mad… if banks need money, all they need to do is offer a decent return on an FDIC insured savings account, and funds will FLOOD IN. 

We need to backstop the FDIC to protect individuals, possibly moving the limit from $100,000 per account to $1000,000 per person. Otherwise let the FDIC raise its premiums to recoup the losses in the long term, and this crisis gets solved from almost no money what so ever.

The simpler the solution, the better. The less new code in a program, the fewer new bugs. Let's not write a lot of new code (or laws) to try to fix this bug.

What do you think?    



David Täht said...

I am curious if you can backstop the savings rate datum, got anything for this quarter? only goes to the second quarter, with indeed, quite a huge boost in savings.

Mike Warot said...

I first heard Karl Denninger say that the savings rate has recently gone from negative to the highest levels in history... so I started digging around, and the evidence suggest he may in fact be right. I was able to find evidence of increased savings rate, but nothing very current.

I assume that he has access to more current info because of his day job. It could be a bad assumption.