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

[McCabe, Terence W]

Very interesting. One reflection on #3. I agree that we should reduce interest rate that balloned on the single home families. But I don't think we should bail out speculators that were trying to ride the real state wave.
Terry McCabe
________________________________________
From: oe-bounces at wedgeblade.net [oe-bounces at wedgeblade.net] On Behalf Of A.M. Noel [amnoel at comcast.net]
Sent: Friday, September 19, 2008 7:30 PM
To: 'Order Ecumenical Community'; dialogue at wedgeblade.net
Subject: Re: [Oe List ...] Is this possibile? 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