We have been hearing a lot of talk lately about bail outs. We bailed out Wall St., we bailed out the big three auto makers, and it looks like we’re going to be bailing out a lot more. Even Joe Francis of Girls Gone Wild wants a bail out. But what about bailing out the people in this country who paid the taxes for all the bail outs?
There has been some talk, especially from McCain during the presidential campaign, about buying mortgages from the banks and then negotiating down the principal to the current value of the home. I get the idea, but I have to say that I think it’s crap. Why should I have to pay for someone else that made a bad real estate purchase? If their house skyrocketed up in value, would they be paying me? (Well, they would if they sold it at a gain, but that’s not really the same) That type of bail out would cost us all money, and in fact is really only bailing out the banks who screwed this all up to begin with.
I’m talking about a bail out that actually worked not just for the banks, but for the American people, and the government. Let’s start with a couple of facts:
- The average American with a credit file is responsible for $16,635 in debt, excluding mortgages, according to Experian.
- The average credit card interest rate is sitting at around 17.6%, according to Defaqto.
- The highest interest of a 1 year CD I could find on Bankrate.com was 3.68%.
Why not give consumers the options of allowing the U.S. government purchase their credit card debt at a rate of 8.5%?
We could set this up so that government purchases the debt directly from the creditor. No negotiating of debt, just a straight pay off of principal.
The government would set up a minimum payment level that would properly calculate interest, and allow the debt to be paid within 10 years.
The debtor signs an agreement that allows the government to withhold those funds directly from the borrowers paycheck, the same as a garnishment. And there is no option of filing bankruptcy, much the same as a student loan or back taxes. There is not better collection agency than Uncle Sam.
The end results is that the debtor significantly cuts their interest rate, which allows them to pay back the debt faster and cheaper. The banks avoid a potential bankruptcy situation and recover their money. And the government makes a guaranteed investment with a return well over twice that of the highest paying CD. Most investors would kill for a guaranteed 8.5% return.
I admit that this is not a perfect plan. Nor am I sure it’s unique, I’m sure there are ideas like this floating around. But it does seem like something that, with some tweaking, could make a huge difference in this country.
Clearly this would not be an ongoing program, we don’t want the government in the lending space. It would be a one time offer to people who have gotten themselves in over their head. We could even add some more conditions, like they are unable to open new lines of credit until this line is paid off.
We already own part of banks, why not structure our bail outs in a way that directly helps the people, and makes good financial sense for this country. I’m willing to bet that we could structure this out in a way that could pay off the national debt with the interest earned. There, I took care of that too! Me for President!!!
But seriously, feel free to tell me the thousands of reasons why this won’t work.