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A current draft of The Hoffman plan to save america. A hopeful solution to the current crisis in America.
By Bob Hoffman
Draft #1 – October 8th 2008
Okay, this is gonna sound crazy, but here you go...it is just the first set of notes. I figured no one else was doing anything, maybe this would start the ball rolling.
Our leaders are quite baffled now and I fear they do not realize how bad things are, or will be. In 1929 after the crash, even then New York Governor Franklin Roosevelt did not think it was that bad and thought industry was “sound.”
They only acted after years went by and they were forced to realize how bad it is.
I offer my solution to curbing the Great Depression we now face.
In the Depression of the 30’s America and other countries all jumped off the gold standard as part of the way to fix the economy. Now, 80 years later, it is time to fall off the ‘credit standard.’
There is no question that ‘credit’ is the problem. It fully controls our economy. So the question is, how do we do it.
Here is the plan.
Credit Cards – All credit cards of all kinds from businesses based in America (or were based in America) should immediately have their rates cut to 8% for 5 years. All new cards also.
Congress must act to stop the unilateral contracts that rule current credit card policies across the board. Congress must act against the few states in the union that allows usury rates to be charged by these companies and enact a stabilizing credit rate cap that makes sense.
Credit rates can no longer change at the whim of the company. They should be stable. Imagine if you are late with your mortgage and they pumped the rate from 6% to 29%. Realistic reasons for rate changes yes, but not based on your credit rating after you have obtained a card.
Retirement Plans – Pensions, IRAs, 401k’s, etc seem to be where most of our retirement money is. Many have more in them then they do in the bank. We must, for a time, make a new kind of FDIC that will ensure and back those 401k’s and pensions across the spectrum. Without that protection, further market erosion will leave people with no retirement, through no fault of their own.
We need to immediately suspend taxing the money people take out of their retirement funds.
Unemployment - In the case of a huge jump in unemployment, say over 15%, severe and immediate aid must come in, as they did in the olden days. Many people are in businesses that result in them not being able to receive unemployment or have jobs that will end in little if any. We need to make sure we can keep people under a roof and able to drive to work.
Health Insurance For most, this will simply be unaffordable. Time for congress to stop using it for politics and come up with a realistic American health Insurance Plan that makes sure we can keep families, even unemployed with some kind of coverage. To not do so would simply be devastating in cases of high unemployment. For those employed, the cost of living will make it impossible to pay for private health insurance too. Employers will be saddled into closing their business trying to keep people insured. This must be done NOW.
For a short period, say 5 years the US government should open its treasury, not to the lenders and banks, but to 'We the people.' The government needs to stabilize the credit market by offering credit directly to the consumer. As the banks and private financial entities get on their feet they can buy or assume this debt from the Government. All profit to go back to the treasury or to help with rebuilding our financial markets. Banks simply will not lend right now and that is killing us.
Government Loans- The Fed should immediately step in to take over normal loans to our state and local governments, at good rates and terms. This will make sure all entities that govern our country remain strong and can handle local depression needs.
Student Loans - The Government must step up and become the major lender for these loans. These can be sold to lenders at a later date when they are solvent. We must continue education in this country or we are done. Student loans should be deferred for one year immediately to help our young people to survive.
Business Loans – The government should step in and immediately, based on the history of the borrower, keep the money flowing to these companies as a bank would. At very good rates and terms. These loans are to be on par to what kind of loans they have been getting over the years. Newer businesses should have to go through a bit more stringent process to make sure they are sound and able. This will allow people to keep jobs, businesses to stay open and even expand.
Car loans – Immediately offer loans to people to buy cars, businesses to buy trucks, etc. All at very low rates, regardless of credit. 6% would be nice. Vehicle prices will be frozen at a moderate level and slowly increase based on realistic indexes, not inflated due to the low interest rates. This will keep people in their cars and keep the American auto industry going strong. Auto Dealerships, for once in their history, will be forced to sell cars honestly and not rape people. After the things settle down they can go back to ripping all of us off.
House prices are over valued due to the fed lowering rates. This is important since most people now owe more on their home than it is worth. This is an impossible paradox that cannot be ignored. Nor is there a magic wand that will fix this. Some areas are quadruple what the home is really worth. The owners will never be able to sell them.
Housing prices, for the next year or two, need to be frozen. In fact, they need to be readjusted to 2001 prices + 15%. This will also mean mortgages must be reduced to that amount also. Call it a rollback, a devaluation, a lifeline. After the frozen period, they should not be allowed to ‘boom’ and be kept in check for at least another year, say no more than 10% increase.
After this 1 to 3 year control on prices, the regualr market can take over again. Prices can rise and people can make their fortunes once again. Different lending standards and oversights will be in place by then.
update housing on Feb 11th 2009: To clarify, we should revalue the mortgage principal amounts. If the owner sells it for more than is owed, then the extra should go back to the bank or Gov't lending institution. Enforced for a period of at least 3 years.
Taxes on Property – These must come back down to realistic 2001 + 15% price rates. And never again should your tax rate be based on a sales price in a boom market, based on the abuse of the Fed Lending Rate system or some other unforseen speculation.
Commercial Property taxes- It is well known that a huge majority of commercial properties in most counties in America are paying 10 to 40% of what they should be. Crooked or incompetent politicians in charge of the appraiser’s office are to blame. And they should be investigated for it too. Those new taxes and back taxes will help offset the budget of these counties.
Home Owner's Insurance - This should be based on the replacement value of the home, not the market value, especially in a boom period. This is fundamentally a rip off by the insurance companies and their policies should be investigated and a few new regulations should be put in place.
Housing loans – The government needs to relax lending standards but require full documentation. They need to loan to people at a low interest rate of 5% if someone buys a house. All existing loans should be brought down to 5% also. All loans that have been adjusted or new ones at the new rate need to be ‘qualified assumable’ to allow easier trading/selling of properties.
Over a period of 5 years all these loans should be able to be sold to financial institutions.
Government as a Landlord – Empty properties in foreclosure need to be rented out to qualified people who will take care of the property, at a good rate. This rate should take into account those renters having to also carry the new valuation of the taxes and homeowner/condo fees. This will prop up neighborhoods and condominiums that are falling apart. This will also keep rents down as for every home someone is thrown out of that is one more family fighting for a smaller pool of homes. Alternately, lenders could take on this task and then sell the home after one year at the new adjusted rate.
In the case of people living in the home under foreclosure, they should be given the option of temporary rental or a revaluation of the property and assumption of a new mortgage.
Foreclosures – The government should take them all off the lenders hands, all of them. At 40 cents on the dollar. Each mortgage and property will be revaluated and then lenders will be able to buy or assume the loans from the government at face value in time.
The real Bailout – to participate in this ‘bailout’ where the government takes on all foreclosures, the lender MUST open its books and emails of its executives to government auditors. Criminal activity should result in seizure of personal assests of corporate heads, even their overseas bank accounts.
Failed concerns – Any failed brokerages, lenders, or other financial Institutions have to be immediately investigated for criminal activity and if found, their CEOs must be brought to justice.
Fraud – Consumers who committed fraud must also pay that consequence. From fines, to losing their home, to jail time in the case of investment properties. There should be a difference between someone who 'fudged' to get a loan and someone who wantonly went apeshit on investments.
In a lot of economic panics, even here in America, veterans have faced some bad times. Medical needs fall to the side, bonuses unable to be paid, benefits never received. Many times the veterans have had to march on Washington D.C. Let us make sure this time that they will be taken care of. This war was wrong and they should not have to pay more than they already have.
Homes should not be foreclosed on when the bread winner was taken away to fight for oil (or whatever they were fighting for). If you support the people who die for us, even if they were lied to, you must protect them while they are away and give them some time when they get back. It is the American thing to do.
The purpose of this is to immediately free up real and true credit lending for businesses, employers, car buyers, home buyers, stabilize and revalue home prices, allow for ease of home buying, bring criminals to justice, and for a time take America off the credit standard.
This must be a short term control method and in the case of the home loans should be over very quickly. The hard part will be for people to understand the revaluation and freezing of home prices and home mortgages.
By not revaluing home prices to previous levels before 2002, by not freezing home prices to prevent another quick boom due to the new process; we will face a devastating and deep depression that will bring home values to the ground and quite likely bankrupt America.
This is a skeleton of a working solution. It solves many problems, is sweeping in design, quick on control and release of that control, and will hopefully keep America from disaster. And if it works even a little bit, will help the global community come out of this before we go to far down that road.
This must be a short term nationalizing of the credit standard in America and must include some changes to how credit ratings work, how credit card contracts work, how lenders/appraisers/brokers work. It offers a re-do for everyone and allows for new regulation and investigation of criminal activity.
Update Oct 13th, 2008
I gotta add one more thing. I am so tired of hearing 'subprime meltdown.' Let's get it straight. This is not because of the subprime lending market. That is a symptom. The real problem was and is the over valuation of the entire housing market. Subprime was last to go up and first to fall, that's all. There is not one person out there who bought a home since 2001 that will not be upside down in debt. As prices slowly drop over the next few years til they get to where they should be, eventually 100% of people who bought a home after 2001 will be upside down.
The subprime was a symptom. When that family with good credit tries to sell their home in two years and find out that homes are selling in their neighborhood for 120,000 yet they owe 380,000, what are they gonna do? Now multiply by about 40 million families.
This was caused by an exuberant political machine that wanted a booming economy and to crawl out of the recession of 2001. The FED and the bankers had to be complicit and the key was the dropping of the FED rate. This was, and is not, about the subprime market. That is being used as an excuse and a lightning rod.
This was greed on a worldwide scale and just like it was in the 1930s you must prepare for over-pricing of goods by greedy corporations, abuse of employees, and many more boom/busts.
Another 'sub-prime' complaint is local property taxes and local budgets. All those people in foreclosure not paying taxes. This is bunk. 1st, municipalities should never have charged taxes based on boom prices like that. 2nd, all municipalities had a boom on tax money coming in and instead of thinking it through, they went and spent it, bankrupting themselves. 3rd, the lenders should be responsible for the taxes or the properties should be seized from them just like they are from normal people.
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