Mort Zuckerman: We Need Second Stimulus Package Immediately

Simple Remedies for Complex Problems Housing and Spending How you fix the housing mess. Do the math on a mortgage of $300,000 at an interest rate of 1% for 30 years. The payment is a little under $1,000. Now do the same mortgage at an interest rate of 7%. The payment nearly doubles. Now do the mortgage one more time with a 3% interest rate and a 40 year term. The payment is a little more than $1,000. Most people who bought houses that shouldn’t have did so under the first example above. The majority of people in foreclosure are there because when the arm reset as in the second example, they couldn’t afford the new payments. I believe a large number of people dealing with foreclosures right now would not be doing so if their current payment were closer to their original payment. Under the third example above, the mortgage payment is very close to the original mortgage payment. If all people who are upside down in their mortgages were allowed to refinance under the third set of terms above, the market would suddenly find bottom. And it wouldn’t be a bottom determined by an avalanche of short sales. The market bottom would be somewhere between the original purchase price and the short sale price. Hopefully, somewhere near the middle of the two. The government could then guarantee the difference between the carrying value of the mortgage and the actual value of the home. Over time, as the housing market recovered, the appreciating value of the home and the principal reduction under the mortgage would converge. Concurrently, the government’s exposure under the guarantee would be reduced. This would allow the banks to carry the loan on their books at full value and not have to deal with the consequences of a short sale or write down. At prescribed intervals, these loans could be reviewed. The payment could be adjusted upward at these reviews keeping the payment equaled 30% of the household income. If the payment went up, the interest rate to the bank would go up accordingly. This plan has no losers. The homeowner gets to stay in their home, avoids a short sale, avoids credit impairment and ultimately has a chance to establish an equity position in the home. The bank winds up with a 3% performing loan on its books that could ultimately improve with an increase in the rate of return over time rather than the recognition of a short sale or write down. The latter severely impairs the balance sheets of the banks thus making the current bad situation worse. The neighbor to the distressed household doesn’t have to suffer through the loss of equity in his home due to all the distressed sales in the neighborhood. And lastly, the taxpayer has its risk deferred and spread out over a number of years and its exposure significantly reduced because of the size and timing of deficiencies on short sales. In addition, there is little cost to the government because they don’t have to come up with any cash to cover the guarantees on homes that aren’t being sold. The guarantee would be between the bank and the government, not the homeowner. Thus if the homeowner decided to sell before the value of the house equaled the mortgage, the loss on the short sale becomes the homeowners, not the banks. Obama’s plan guarantees an impaired balance sheet to the bank, a significant cost to the taxpayers, billions of dollars in cash outlays and it opens the door to the government getting skinned. If we adjust the payment terms rather than adjusting the value of the house, there is no room for deceit and profiteering. And if ever there were a sucker for getting skinned, it’s the Federal Government. This plan should only have two conditions to qualify. The homeowner must be upside down in their mortgage and they must be capable of making the restructured payment. How you jump start the economy. Every taxpayer in this country, including corporations, should get a rebate on their 2009 taxes in an amount equal to 35% of what they paid in taxes, on average, over the last three years. That rebate would be deducted from the taxes they owe in 2009 on their 2008 income. There would be a requirement that this rebate be spent on manufactured or constructed goods before 12/31/09 or the unspent portion would have to be repaid in 2010. It’s simple and has a ton of advantages. First, there would be no mechanism required on the part of the Federal Government to get the money into the hands of the taxpayer. It would simply be another line on the 2009 tax return. Those who already filed would need to file an amended return. Second, all of the money ends up creating demand for manufactured or constructed products. Most jobs come from creating these products and selling them. Every dollar stimulates the economy and puts pressure on job creation. If it can’t be saved and can’t be used to pay bills or otherwise reduce debt, it will stimulate the economy. And believe me, if the choice is to spend it or give it back to the government, it will be spent. Third, it is quick. 100% of the money winds up in the economy by the end of the year. Fourth, the government doesn’t have an opportunity to waste it. They aren’t involved. Fifth, there is no risk that the government will get ripped off. Putting the government between the stimulus money and the places it is intended to go opens the door for every kind of rip off possible. The government is the biggest sucker on the planet and every study ever done shows filtering money through the government severely reduces the amount of money that ultimately gets to the intended recipients. How to sustain spending in the economy: Cut taxes.

I ding it ironic that Mr. Zuckerman mentions the instability to Chavez at the same time that we have elected a president who is banking on the same popularity to maintain powere here. Think about it. Obama is touting his solution for the poor while removing the incentive to succeed with higher taxes on the upper middle class. Only the poor and super rich are protected. (If $20 million is taxed at the same rate as $300,000, the super rich person is protected unless $20,000 is taxed the same.)

I keep hearing people talk about needing more stimulus, and talk of "It's not enough" and some complaining that the "It's not enough" talk damages things further. Where is the "It's too much!" crowd? We just need to weather the storm and recover, not add a bunch of pork. How about good solid infrastructure spending, and running a larger than usual deficit with significant tax breaks for lower and middle income earners. The tax breaks are an immediate incentive, and the infrastructure spending creates longer term employment opportunities.

Perhaps the second stimulus package could include some real tax cuts. My state of Arizona has a one billion dollar short fall in tax revenue. So their plan is to raise my taxes to cover the state’s budget short fall. So stimulus one’s tax cut of thirteen dollars will go to pay for Arizona’s tax debt. Mr. President just send my check directly to my state. Thank you the little guy.

Mort Zuckerman is right. The stimulus plan is far too small to have an impact. Like the money spent on banks, using too little means that it will be lost. The situation is much worse than the people with the power and means realize. As long as the economists think in their traditional terms, they will fail. Since the business models of many companies are now invalid, the country needs to promote new company generation. If this is not realized quickly, the "lost decade" may soon become the "lost generation".

SECOND stimulus package!? Is he kidding!? The FIRST hasn't even started working yet! Typical Dem: Spend, spend, spend!