Thursday, November 27, 2008

Financial Crisis

A possible way to resolve the financial crisis in the United States

I propose we home in our focus on the individuals directly affected by the fallout of the current crisis. We then analyze how they can be fairly assisted without penalizing those who have not contributed to the crisis. Therefore those primarily affected most seriously are those who are likely to foreclose on their homes, those who are likely to lose their jobs, and the retired and those about to retire in the next two years, whose pension funds have fallen in value drastically.

On home foreclosure, the initial proposal for a 90day moratorium on repossessions is a good one. Then I propose a revaluation be done on all homes and where outstanding mortgages are more than the revised value, the banks be assisted by way of a debt to the government of the difference. The homeowner is thus given a revised mortgage (at 100% of valuation) to repay at a now revised rate of interest. The homeowner then has the chance to walk away or accept the revised mortgage. No tax will be assessed on the difference in loan amounts. For those likely to lose their jobs, one can extend unemployment benefits for a further 6 months, but also give a subsidy to the employers for worker retention, so that unemployment benefits are not needed when a job is saved. This would only extend to some industries such as autos, where it is decided in the nation’s interest to protect them. In construction, where this cannot be done, these workers to be offered alternative employment in public works projects, if they so wish, that are much needed, such as schools and road building, repair and renovation. For retirees and immediate retirees, some sort of income supplement for a few years, to ensure they are above the poverty line, would be an adequate method to cover this sensitive section of the population.

The crucial point here is that all these proposals will directly put money in peoples pockets or prevent them losing consumption funds. This will go directly to stimulate consumption, which is in danger of falling, with the attendant job cuts in sectors such as retail and restaurant services. This will be politically acceptable, and will be a real stimulus package. Of course tax cuts for the middle classes will also help in this consumption led recovery.

It is also as projected a good time to begin giving aid to industries in the so called Green Job sector so that a structural change can take place to prepare the economy for environmentally sound and sustainable, renewable energy.

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