MORE FROM THE VOICE

STORY TOOLS

The $700 billion bailout plan is designed to unclog the financial system and the flow of credit. The plan does little to avert foreclosures, the root of the crises, yet the likes of mighty Microsoft, among many others, are urging congress to forge ahead with a quick solution.

Is the bailout really the best answer for the U.S. economy? Or is it akin to a Band-aid on a severed artery? That depends on whom you ask. But one thing is certain, when you move away from corporate America, there is far less support for the banker bailout.

$700 Billion Bailout Doesn’t Bail Out Economy The Associated General Contractors of America (AGC) expressed disappointment in the U.S. House of Representatives for failing to pass the bipartisan Emergency Economic Stabilization Act of 2008 (EESA) by a vote of 228-205.

"This legislation was a move that we believe would have restored confidence in the financial markets," said Stephen E. Sandherr, chief executive officer of AGC. "We're disappointed and we hope that members of Congress who opposed this bill will reexamine their positions so we don't face the financial crisis that has been predicted."

Congress has one more opportunity to act on the legislation this week, and AGC, its members and Chapters across the country continue to push for action that will infuse money into the system, ensure economic growth and job creation.

Brad Smith, Senior Vice President and General Counsel at Microsoft, expressed urgency for the bailout. “Microsoft strongly urges members of the U.S. House of Representatives to reconsider and to support legislation that will re-instill confidence and stability in the financial markets,” he said. “This legislation is vitally important to the health and preservation of jobs in all sectors of the economy of Washington State and the nation, and we urge Congress to act swiftly.”

IGNORANCE MASQUERADING AS LEADERSHIP

But not everyone is on board with the bailout. Bob Barr, Libertarian candidate for president, praised the House for rejecting the Wall Street bailout.

“Few people thought it could be done, but members of Congress listened to the people rather than the establishment to vote down the proposed $700 billion bailout of Wall Street," Barr noted. “Their courageous action gives us a chance to start over. Our starting point should not be a government bailout. It should be a market work-out.”

As Barr sees it, the bailout package was flawed from front to back, starting with its price tag. Case in point, a Treasury Department spokesman admitted to Forbes.com that the data was 'not based on any particular data point.'

Following the House's vote, New York Times Chief Financial Correspondent Floyd Norris stated that although the bill was supported by Senators John McCain and Barack Obama, "a majority of the House voted along with Bob Barr."

"On this basis the Bush administration would stick every American citizen with a bill for 2,300 dollars," Barr says. "That would cost a family of four more than $9,000—which is a really large number for the average Americans who pay most of the government’s bills. This is arrogance masquerading as leadership.”

Moreover, Barr says, the prospect of a government bailout has discouraged private companies from taking tough steps to improve their financial balance sheets. The sentiment on the street sounds something like this: "Why sell damaged assets in a slow market when the government might take them off your hands?”

“Administration and congressional leaders should announce that the bailout is dead and financial institutions will be responsible for their own mistakes. That may mean takeovers for some, work-outs for others, and bankruptcy for the worst off,” Barr says. “Government bailouts don’t eliminate the pain of an economic bust. They only shift who pays.”

BANKS NEED TO EAT THEIR MISTAKES

Banks and lenders who granted unstable loans should get a 40 percent penalty and consumers should be offered 50-plus year mortgage repayment plans, said Howard Dvorkin, CPA, personal finance expert, author, founder of Consolidated Credit Counseling Services and former consultant to the Resolution Trust Corporation that focused on bank work-outs in the late 1980s.

Dvorkin’s goal is implementing a plan that would not reward people for bad behavior and at the same time keep people in their homes, without having taxpayers pick up the tab. Currently nearly $100 billion worth of loans are deemed at risk for foreclosure over the next two years as borrowers with adjustable rate mortgages, see rates adjust. Some borrowers with these loans are being informed now of payment changes and the bulk of those loans will reset in 2010.

"The housing calamity is at the heart of the problems that our economy is facing right now," Dvorkin says. "Looking at the numbers it seems the average increase in mortgage payments will be 65 percent and payments could jump by as much as 100 percent for some people.”

Until now, the majority of the mortgage crisis was caused by subprime loans — those with high interest rates made to borrowers with poor credit. However, borrowers at risk now on average had good credit but stretched their budgets with option-ARM loans.

Dvorkin is proposing a solution to help solve the mortgage and credit crisis in the United States.

Dvorkin’s proposed plan will punish all parties involved. Punishing lenders for giving loans to people who couldn’t afford them and those consumers who knew they would not be able to afford the mortgage long-term. Nationwide, there have been 2 million filings this year and RealtyTrac, a company that monitors foreclosure activity, projects 2.5 million additional homes will enter foreclosure over the next year.

“The key is to get the monthly mortgage payment amount similar to when the consumer first took the loan out, before the ARM reset. Extending principal payments over 50 or 60 years, would allow the consumer to be responsible for the principal amount of the original mortgage. This plan would require some tax law modifications but it would keep American’s in their homes,” continued Dvorkin.

REFORMING GOVERNMENT

Beyond the immediate crisis, Barr says the most important measure for the administration and Congress is to address the policy mistakes that got the nation’s economy into this mess in the first place.

“We need fraud investigations and prosecutions to police the market. We must privatize Fannie Mae and Freddie Mac so they can no longer be used as political tools to irresponsibly expand mortgage lending,” Barr says. “We must adjust accounting rules, like the ‘mark to market’ standard, which have crippled the balance sheets of essentially sound companies.”

Instead of being panicked into voting for a bad bill, Barr says, “legislators should take a deep breath, stay out of the way as the market continues its painful adjustment process, and start fixing the financial problems that government caused over the years.”

Jennifer LeClaire is the editor of The Voice magazine and author of "Doubtless: Faith that Overcomes the World." You can also visit her online at www.jenniferleclaire.org.