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Bypass banks, let Uncle Sam hold America's mortgages


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POSTED: Monday, February 23, 2009

Our president said that he wants to hear from us, the people, and encourages us to give our input. Let me be clear that, unlike the thousands of economists who failed to predict this credit crunch, I don't pretend to have the answers to this crisis that is threatening our livelihoods. Nevertheless, here is my input.

It is the hope of all of us that the stimulus program will work and it will stabilize our wobbly economy. But in order to make sure that the objectives are achieved and the money given by the government is not squandered away as it has been up to now, I would respectfully like to put forward some ideas.

If the government gives a blank check to banks with the objective to stabilize and rescue the housing market, there is a strong possibility that the banks will sit on it, invent thousands of excuses as to the difficulties of getting the rescue program going, the executives will find a way to reward themselves handsomely. And I dare to say that the taxpayers will never see their money back. We have seen it before. Greed is almost unstoppable and unconquerable.

Since the government is going to spend the money anyway, why not buy directly from the banks the mortgages of those American citizens who are in real need? The criteria should be relatively simple to establish because the banks and financial institutions have accurate records of the borrowers, the property addresses, the balances owed, down payments and payments made, the borrowers' jobs, their income. The IRS has their tax records. Then the banks will be out of the picture, the government (taxpayers) will be the creditor and will be certain that the money has been spent for what it was intended. The houses then become an asset of the government until the mortgage has been repaid.

I am not suggesting that the government gift the houses. What I am suggesting is a rescue plan that will allow bonafide borrowers to keep their houses until they are back on their feet and can repay the government maybe through a payment plan administered by the bank that was the original lender (for a fee) or through their income tax return. I am sure that the details can be worked out. But the benefits are readily visible. Throwing millions of people into homelessness will be prevented. Can you imagine millions of people roaming the streets of our cities with nowhere to go and no jobs? Then the government would have an even more serious problem on its hands.

Another idea might be that, in the case of an impending foreclosure, the government steps in and negotiates with the lender to pay the principle each month of the mortgage. The lender (who is the one responsible for most of this mess anyway) defers the interest payment by adding it to the life of the loan. There would obviously be a specific amount of time allocated to the borrower—as soon as the economy improves and they can get back in the position of paying the mortgage themselves, then the government steps out.

This is hardly the way that capitalism and free enterprise works here in America, but dishonest people took advantage of the system with impunity under the government's watch and now that we are in this mess, I guess there may be little or no alternatives but for the government to step in and clean it up.

As far as saving and creating jobs, it is clear that most of the present managers of major corporations are incapable of running their own companies. The dismal results speak volumes about their abilities and skills. Again, although their resignations might be in order, I am not suggesting that the government should replace management and run these companies. But how could the government safeguard the taxpayers' money and make sure that it is used wisely? In any corporation, major shareholders are entitled to appoint their representative on the board of directors.

Perhaps the government, as the future major shareholder in many of these corporations could do the same and appoint representatives to the boards of these companies that are receiving substantial amounts of money from the taxpayers. Then it will be able to monitor and prevent the shameful squandering of the past and the undeserved mega-bonuses that many executives awarded themselves.

There are many capable and honest retired executives with in-depth business knowledge, who, if asked, would be honored to serve on the boards of these rescued companies.

 

Franco Mancassola, a frequent contributor to the Star-Bulletin opinion pages, founded Discovery Air and Debonair Airways. He also was vice president of International Operations for Continental Airlines and World Airways. He lives in Hawaii Kai.