Bailout Passed Now What?

After adding about $140 Billion dollars worth of tax cuts and spending to the bill, the House Republicans sided with bipartisan lines and passed the Rescue package. Now that the bill has been signed into legislation, what now? Over a 159,000 jobs were lost in the month of September alone and this country is heading towards a vicious halt. Sec. Paulson is now tasked with purchasing these bank assets to free up the credit markets so that institutions will begin lending to each other and businesses again.

In previous blogs I have supported the bailout and I am not wavering, but as I stated if the banks do not begin to lend then the bailout was all in vain. Lending means to all not just to one segment of the community. To re-start this economy we can not sit back and wait for trickle down to consumers; Sec. Paulson has to immediately lay out new lending requirements for Fannie Mae/Freddie Mac and have a team immediately look into which mortgages can be re-financed immediately and which ones are going to take some time. We have to get as many assets refinanced as soon as possible otherwise we will waste the $700 billion.

My suggestion is to offer a 40-45 year fixed mortgage @ 4.5% to anyone that is in foreclosure, pending foreclosure, slow pay, in a variable rate mortgage and still has the means to pay the note. Next offer anyone in a high interest rate the ability to re-fi to a lower rate. Once the re-fi is complete, the mortgage would be transferred to Fannie Mae or Freddie Mac to manage. This could potentially increase the quality of the mortgage backed securities that the bailout will buy, thus proving to be profitable to the American taxpayer. It will delay the build up in equity in the home if only the required monthly is paid, however, the goal will be to get the house to a affordable payment so the homeowner can pay more than what is required.

Another positive benefit is this refinancing strategy could potentially free up some immediate liquidity for consumers thus providing the lubrication for restarting our economy. If consumer spending increased this will potentially lead to an increase in a business' budget thus requiring more people to be hired. The flow of money has to re-start, but I am all for a period of 3 months where Americans are spending less and saving more. Saving will be a primary catalyst to increasing current deposits on hand with banks, thus allowing for institutional lending to resume with confidence.

Patience and prudence must prevail during this period of our life. The unfortunate circumstance is that our country is in a election year which adds more political red tape to the equation. We have to create more jobs...allow for stem cell research to resume, allow for more technological and alternative energy innovation, etc. As a country, we have to focus on wealth building, education, and health care; this is the only way we will be able to restore our super power status.