Tuesday, September 30, 2008

The Political Friends Economic Plan

As I write this post, it is the first day since Congress failed to pass the economic bailout plan. We were told all last week, all this weekend, and all day Monday, that something had to be done, and it had to be done quickly. When the $700 Billion bailout failed yesterday, the market continued a tank that had started that morning. However, this evening (or as I prefer to call it, Apocalypse +1), the market has rebounded some, and investors appear ready to see what Congress is going to do. Most Americans spent last week, this weekend, and yesterday, calling their elected officials with instructions not to vote for this bill, or look for a new job come this fall. Speaker Pelosi seemed eager to sink the bill when she launched a tirade on the House floor denouncing Republicans and the President. I think the last few days have taught has a few lessons.

First, we will survive if Congress doesn't hand over a $700 Billion check to someone who has no supervision on how to use it. Second, the market can handle Congress spending time looking at alternatives. And finally, most Americans don't like the idea of bailouts. It's against our nature. Most of us believe people should be allowed to succeed or fail on their own. One other lesson that is starting to become clear is that the people who got us into this mess (the Government) are probably not the best people to get us out of this mess.

Keeping all of this in mind, and the fact that I think less government involvement is almost always better; I thought I would present my own plan for success. Some of these approaches are controversial, some seem like common sense. I welcome your input. Who knows, maybe Congress will adopt the plan we come up with.

Point Number One: No More Bailouts. I realize the government has already said this, and then bailed another bank out, and then started asking for the "bail-out-to-end-all-bail-outs". This time we stick with it. A few companies or banks may have to fail for Wall Street to believe us, but if we stick with the message, they will believe.

Point Number Two: No More Fannie Mae or Freddie Mac. This is the first controversial point. I don't think the government, or an agency backed by the government, should be in the home loan business. I have searched through my copy of the Constitution and I can't find the Amendment that grants the right to "affordable housing". A business shouldn't be able to take risks and assume the taxpayers are going to bail them out. This can apply to point number one as well.

Point Number Three: No More Capital Gains Taxes. This is a temporary (maybe) item. Republicans last week started talking about a two year suspension of the capital gains tax. My plan takes it out to five years to make sure we nip this thing in the bud, and then would require a new vote to reinstitute it. Last week we saw two companies raise $10 Billion in one day each. Articles that I have read suggest these companies could have raised more if they had tried. Well run companies attract investors, and more money in the market to invest is a good thing.

Point Number Four: 5% Less Tax For Everyone. If I am doing my research right, the U.S. currently has six income tax brackets. The lowest one is 10% (single person earning less than $8,025 a year) and the highest is 35% (earning over $357,700 a year). My belief is the more money in the hands of people, the more money available to invest. I would cut each of these brackets by 5% (bringing the range to 5% on the low end and 30% on the high). This would be a permanent cut. If it gets us out of this mess, then I have proven myself right. The government was ready to hand over $700 Billion, they can just do without it instead.

These points are based on reading a number of articles, and some mental exercise on my part. I am not an economist, but neither are most members of Congress. I think more people would be willing to try this plan than the $700 blank check plan. Let me know your thoughts. I think we are as smart as the Congress, let's figure out the fix for ourselves.


pack04 said...

Again I will say if it was such a huge hurry to have it why are they not going back to work until Thursday at noon.

Money to prop something up never sounded like a solution. It sounds like a band-aid.

Andy I don't know if your plan will work but it seems to make sense being as it addresses things on many fronts.

I will disagree with you on one thing, sort of. If the American people, through the legislators forced these companies to give loans to people that should not have gotten them, then we have to pay for that mistake. Or at least help out.

Andy D said...

I think I agree with your comment. However, one important thing to remember is that these mortgages or mortgage backed assets are not worth zero right now. The banks aren't selling them because they want to see what the government will do.

Here is my understanding of the situation. If you own some of these mortgage backed assets, you could sell them on the open market for some value. Let's call that value 80% (a number I just pulled out of my head). You could sell all of these "questionable" assets for 80% OR you could hold off and see if the government will buy them off your hand at 100% using tax payer money. Even though there might be a buyer out there at the 80, 75, or 60 level, what are you going to do?

One more thing: Congress tells us that the bail out bill might turn a profit. No one knows what these assets will be worth in 4 or 5 years. If the government thinks it might make a profit, I guarantee you there are private investors thinking the same thing. We just need to get the government out of this business and let the market sort it out.

pack04 said...

No comments on this. I think that is odd considering this is such a huge deal but yet something, almost a nothing or non important topic on Palin gets 100 comments. Sad.

Odd thing I noticed. On Monday when the vote for the bailout in the house came up the market took a dive. On Tuesday when the bill had failed the market climbed. Wednesday really no change. Vote for the bill on Thursday by the senate and the market dropped. I am guessing today with the bill back in the house it will drop again. I think people are a little unsure of the bill.

If they thought it would work, would "evil" Wall Street not try to make the market good and make those bad loans worth as much as they could so they would be able to get more and more of the billions of dollars from the government when they sell the bad loans to the government?

Something I am proud of...the three representatives from where I live now, and the 2 from the previous places I have lived have voted against the bailout bill. Two of them are Democrats!!!