[Dialogue] Is this possibile? A.M.Noel

[A.M. Noel]

Obama Economic Crisis Solution

Upon a long term study of the economic meltdown of the financial sector and
thus the economy, I have tried to come up with a solution to the problem.
The solution here is of course really succinct and more comprehensive of the
solution will be formulated.  The purpose of this document is to provide a
concise framework for an alternative solution so please excuse its curtness.

First, an understanding of the economic problem.  The crux of the problem
being faced by the major financial institutions in the country is a
liquidity problem.  Banks have made loans to their clients with the
expectations of it being repaid.  (The wisdom of some of these notes are not
discussed here but could be included in a more comprehensive document.)
Unfortunately a substantial percentage of these loans have been defaulted
upon creating within a bank a lack of expected funds flowing in.  When this
amount is significantly large enough it makes the banks ability to live up
to its financial obligations questionable.  Thus a liquidity problem.  So
what is the solution?

The solution is actually three fold but before it is postulated let us first
make one observation.  What if we can stop loans from defaulting?  Then
banks will get their payments from these clients and thus reduce the
liquidity problem that the bank will have.  The client also now will have a
chance to hold on to their most precious asset.  So how do we reduce
defaults?  

The answer is three fold all of which are geared towards reducing the number
of defaults amongst borrowers.  It is better for a bank to get some money
back rather than nothing.

1.       Increase the terms of the loan - The purpose of this solution is to
reduce the monthly mortgage payments of the borrower to allow them to be
able to continue making payments while still possessing their loans.  Thus
we make 30 year loans into 40 or 50 year loans.  These terms can be
renegotiated when the economic health of the country and the individual is
better. This will lower monthly mortgage payments of the borrowers.  Now
since a majority of your early payments are interest, this solution will
only bring payments down slightly.  But if we can get customers to pay
something instead of defaulting and getting nothing, the bank and the
borrower are now immediately better off.

2.       Reduce the amount of the loan - If value of the loans are reduced
between 5-10% on a case by case basis then once again monthly mortgage
payments will be reduced, giving the borrower a chance to hold on to their
property.  From the banks point of view it is better to have a loan
discounted and still hold 90% of their value than to have the loan default
and get the property which essentially because of the defaults are not worth
a lot less than 90% of their value.  It some cases housing values have
dropped more than that in a month.

3.       Reduce interest rates - Once again this will lower the mortgage
payments to the borrower but severely reduce the probability of defaults.
Once again lower cash flow is better than none.  

 

The obvious advantage to the government and the nation is the stop or at
least slow down the collapse of the banking and financial industry.  There
are other benefits to the government.  The need for massive financial
institution bailouts are several reduced.  The probability of banks
collapsing caused by illiquidity is severely hampered.  The beauty of this
elegant solution is that it would cost the federal government or for that
matter any government a dime.

Once again this is only a brief summary of what could be a massive
comprehensive solution to a incredibly pressing issue during this time of
economic crisis.  Frank  1-910-671-6769. 

 Love your comments 

A.M.Noel 

206-321-6274

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