An open letter to congress

[Surf314]

I have been talking a lot with people about the financial crisis and we've discussed solutions that I am surprised no politician is talked about or done anything towards.  So I wrote it all out as an open letter and I am putting it in my public dropbox.  If you are interested print it, read it, sign it and send it to your congressmen/women and both campaigns.  If you have any suggestions please post it pretty quick.  I plan and using my dad's site to host this and digg and reddit it to try and get people talking about solutions like these and putting pressure on politicians.

[Surf314]

Text for the lazy (updated):

An Open Letter to Congress and Banks

As a resident of Main Street I was disappointed by the passage of the bailout bill and even more disappointed by the use of that money to date, especially when there are things that could be done now that have little cost and almost zero risk to the tax payer.  Here is my plan for how you can help me and millions like me get through this storm.

The government and the banks need to work together to offer existing homeowners a chance to go interest-only for any amount of time up to 3 years on homes that they occupy.  The time that the homeowners go interest-only will be added to the back of their mortgage.  The government can facilitate this by offering to insure the first 20-40% of losses on the mortgages this offer is made.  I think this will help on many levels.  It will allow those financially troubled to immediately reduce their bills and thus reduce the danger of foreclosure, and if a sale is necessary it will give the homeowners a three year window to try to not sell at a loss.  It will allow people to use that money to pay down their high interest debt.  Lastly it is well known that a certain amount of spending is needed to help in the short term and this will help free up some disposable income to do so.

Obviously this would have to be done with care; we need to maximize the benefit this time will allow us.  Therefore this should coincide with legislation and pressures on the lending industry in the three following areas.  There needs to be a personal financial advice service that is free and available to anyone provided as a government service.  The government needs to work with the lending industry to provide incentives for people who pay down their debt and keep their debt low.  Lastly, the government needs to work with the credit industry to create an absolute debt ceiling for non-asset backed consumer debt based on income.

Personal finance is something that everyone should know and many don’t.  More importantly the lack of these skills by a majority of Americans (even by those that would call themselves financially savvy) is a major drag on the US economy.  A basic financial advisement program teaching the skills of making a budget and how to manage and pay off your debt, as well as the dangers and costs of carrying that debt should be set up immediately.  The cost of this program could be very small through the use of college students and a working scholarship program.  Give students a chance to get scholarships and interest free government loans in exchange for work that will benefit America.  Education is important if we are going to continue to compete in the global economy and in the current crisis it's going to be tough for people to put themselves through school without taking out massive debt (and furthering the problem).  So a working scholarship program will kill two birds with one stone.

The lending industry, with co-operation from the government where necessary, needs to provide incentives for consumers to pay down and maintain safe levels of debt through lower interest rates and good credit scores.  This would benefit lenders overall as they will have less risk in lending to those with manageable debt.  This will also decrease the risk of people not being able to pay their mortgage as their costs created by debt go down.  It will also help the US economy overall as we are now realizing having a nation of borrowers does not help us have a healthy economy.  As of right now there are no incentives to maintaining low levels of debt, in fact in some cases the incentives are to have high levels of credit.  During the three year period homeowners are able to go interest free it is absolutely important that they use most of the money freed up to pay down and maintain a reasonable level of non-asset backed debt.

As part of the incentive program there should be regulation to create an absolute debt ceiling for non-asset backed debt based on annual income.  Personally I think this should be done by the lending industry without government intervention but someone needs to do it.  Having a debt ceiling will help both lenders and borrowers.  From a lending standpoint knowing the absolute limit of non-asset backed debt a person can have will help them determine risk and keep risk as low as possible.  They will know that their costumers will not be able to take out more debt they can afford with other companies and will be able to pay off their total debt in a reasonable amount of time if necessary.  For consumers this will lower interest rates and increase competition.  Lenders will have to compete for a borrowers’ debt allocation and consumers will be able to pick the best rates possible provided they stay under their debt ceiling.  This ceiling should be based on the time it takes to pay off the debt using their disposable income.  My suggestion would be a year, so that at any time the maximum amount of credit card and other non-asset backed debt a person can hold is the amount that they can afford to pay off within a year.

This plan will immediately help those of us on Main Street and is of little cost and risk to the taxpayer.  There is absolutely no excuse why this plan, or one like it, should not be enacted immediately especially when you have approved over 700 billion for Wall Street.  As an American and a resident of Main Street I ask that you put this plan or one similar in effect immediately with no pork attached.



Signed,




Main Street Resident

[Surf314]

Reddit

[CaffeinePowered]

If you are going to use the Main Street/Wall Street reference stop right there and get rid of it. I hate that reference, almost as much as I hate 'joe the plumber'.

And to be honest, I'm not in favor of any kind of bailout, for either the ordinary citizen or the banks. Or anything further, the consumer needs to be punished, severely, for living outside their means, our economy should be based off of actually producing shit instead of consumer spending. And banks that practiced dicey lending need to be punished as well.

Any manager that allowed that shit to happen should be fired. The banks that are doing just fine are the ones that didn't engage in this shit. The government is also to blame partially for all this shit for encouraging consumers to spend too much and for forcing/encouraging banks to lend out to unqualified buyers, because ZOMG even teh poorz should have homes its the American dream.

Bullshit, the American dream is freedom, the freedom to either move up the social ladder through hardwork and sweat, or to be content with the life you live and the freedoms you enjoy.

[Eschatos]

Damn good idea.  It's nice to see an ordinary citizen doing something.

[Surf314]

If you are going to use the Main Street/Wall Street reference stop right there and get rid of it. I hate that reference, almost as much as I hate 'joe the plumber'.

And to be honest, I'm not in favor of any kind of bailout, for either the ordinary citizen or the banks. Or anything further, the consumer needs to be punished, severely, for living outside their means, our economy should be based off of actually producing shit instead of consumer spending. And banks that practiced dicey lending need to be punished as well.

Any manager that allowed that shit to happen should be fired. The banks that are doing just fine are the ones that didn't engage in this shit. The government is also to blame partially for all this shit for encouraging consumers to spend too much and for forcing/encouraging banks to lend out to unqualified buyers, because ZOMG even teh poorz should have homes its the American dream.

Bullshit, the American dream is freedom, the freedom to either move up the social ladder through hardwork and sweat, or to be content with the life you live and the freedoms you enjoy.

Did you read my letter?  Because my ideas are all based around plans that benefit both sides and give nothing away.  The only thing is that the government needs to exert the pressure it has to make lenders do this because truth is I don't think they've learned their lesson.  These are things they would want other lenders to do but wouldn't want to do themselves.

Also I used Main Street because it evokes a complex idea with only 2 words.  Yes it's cliche and a bit annoying but it serves a purpose.

[x]

Yes it's cliche and a bit annoying but it serves a purpose.

This is EXACTLY how Nazi Germany started.

[Surf314]

[quote author=Surf314 link=topic=1654.msg46072#msg46072 date=1225126044]
Yes it's cliche and a bit annoying but it serves a purpose.

This is EXACTLY how Nazi Germany started.
[/quote]

Yes but Nazi Germany had dirty jews.

[x]

[quote author=Arnie's Right Bicep link=topic=1654.msg46078#msg46078 date=1225126724]
[quote author=Surf314 link=topic=1654.msg46072#msg46072 date=1225126044]
Yes it's cliche and a bit annoying but it serves a purpose.

This is EXACTLY how Nazi Germany started.
[/quote]

Yes but Nazi Germany had dirty orange jews.
[/quote]

[CaffeinePowered]

Did you read my letter?  Because my ideas are all based around plans that benefit both sides and give nothing away.  The only thing is that the government needs to exert the pressure it has to make lenders do this because truth is I don't think they've learned their lesson.  These are things they would want other lenders to do but wouldn't want to do themselves.

Also I used Main Street because it evokes a complex idea with only 2 words.  Yes it's cliche and a bit annoying but it serves a purpose.

Yes I did read the letter, and I'm not sure it would entirely work since paying interest only, even for some years over time, is how a lot of people got into this mess in the first place.

Not paying back your debt and simply letting it roll over leads to over leveraging and eventually bankruptcy/foreclosure. I think the banks aside a portion of blame must fall on the consumer and their spending habits. The only way you are going to change those habits is having a significant shock to the system. One good thing they did recently pass was a credit card bill of rights, which can make users force companies to deny overage-charges. Before they would never tell you when you hit the limit, simply let you go over, hit you with a big overage charge and rate increase and then demand the money.

Fault on both sides, the banks for doing it, and consumers for being stupid enough to continue perpetuating the 'gotta have a bigger dick and outdo the johnsons next door by buying more shit' culture of American spending.

[cannedpeahes]

Fault on both sides, the banks for doing it, and consumers for being stupid enough to continue perpetuating the 'gotta have a bigger dick and outdo the johnsons next door by buying more shit' culture of American spending.

Ruining your Average Joe by punishing him for shaky borrowing isn't going to help the economy; yes, they're going to learn their lesson, but they're going to learn it at great cost to themselves, their families, and the nation as a whole. Punishment is the simple way out. Positive reinforcement takes substantially more effort to do, but the reward is much greater. We can save punishment or reinforcement for later, even: we need a fix, and we need it immediately. The whip-and-no-carrot logic doesn't serve to improve our position in the short term whatsoever.

I support this plan, Surf, but it does need some tweaking. Mostly in the way it's pitched, because it just sounds slapdash at the moment and I think with some careful, psychological wording it would sound just like you want it to. I will gladly send this in to my district's congressman, though.

[Surf314]

Fault on both sides, the banks for doing it, and consumers for being stupid enough to continue perpetuating the 'gotta have a bigger dick and outdo the johnsons next door by buying more shit' culture of American spending.

Ruining your Average Joe by punishing him for shaky borrowing isn't going to help the economy; yes, they're going to learn their lesson, but they're going to learn it at great cost to themselves, their families, and the nation as a whole. Punishment is the simple way out. Positive reinforcement takes substantially more effort to do, but the reward is much greater. We can save punishment or reinforcement for later, even: we need a fix, and we need it immediately. The whip-and-no-carrot logic doesn't serve to improve our position in the short term whatsoever.

I support this plan, Surf, but it does need some tweaking. Mostly in the way it's pitched, because it just sounds slapdash at the moment and I think with some careful, psychological wording it would sound just like you want it to. I will gladly send this in to my district's congressman, though.

If you have any editing tips just quote my letter and make the edits there.  As soon as I get enough feedback I'm going to make a final and start trying to get it into as many people's hands as possible.  Congressmen/women, the media and both candidates.

[CaffeinePowered]

Ruining your Average Joe by punishing him for shaky borrowing isn't going to help the economy; yes, they're going to learn their lesson, but they're going to learn it at great cost to themselves, their families, and the nation as a whole. Punishment is the simple way out. Positive reinforcement takes substantially more effort to do, but the reward is much greater. We can save punishment or reinforcement for later, even: we need a fix, and we need it immediately. The whip-and-no-carrot logic doesn't serve to improve our position in the short term whatsoever.

I support this plan, Surf, but it does need some tweaking. Mostly in the way it's pitched, because it just sounds slapdash at the moment and I think with some careful, psychological wording it would sound just like you want it to. I will gladly send this in to my district's congressman, though.

Actually the letter is a mix of long and short term stuff

Short Term:

- Interest Only On Loans

Some loans are already this way and people still have problems paying them, live within your means, if that means leaving your current home and renting or buying a smaller home, so be it. People buying everything on credit and not being happy with what they had is part of what led to this problem in the first place.

I just look at all the large homes they built around my neighborhood during the 90s and wondered how the fuck people afforded them, well they didn't, it was all based on the home's value increasing then selling it later and reaping the profit, or paying interest only on a loan instead of actually building equity. Many of these homes were also empty, as in they could afford the box, but not the stuff that goes into it, either that or they only bought really cheap stuff.

- Gov't Insurance on Mortgage Losses

Please no, we've spent enough already, this only works if the vast majority of losses don't happen. If things continue to spiral you will be left with an enormous liability for the government, and the debt is already ballooning as it is

- Credit Ceiling

Consumers now have this option under the recently passed credit card bill of rights, you can keep a card from letting you go over its limit.

Long Term:
- Finance Education

Some stuff is already in place, but it needs to be expanded. Might want to publish a short PDF or something for the short term, but this wouldn't see any benefit for several years. I know at least in my highschool you had to take a personal financing class before graduating.

- Credit Management Cooperation

Some provisions for this are contained in the recently passed credit card bill of rights.

- College Loans

Most government backed loans are already very very low interest rates, to the point where they make no money, just maintain at the rate of inflation. Problem here IMO is too many people go to college, pushes costs up too much. You can not have a country or an economy where everyone sits in white collar office jobs and produces absolutely nothing in factories.

Skilled non-college trades need to be more more viable again, such as welding, machining, manufacturing, ect.



I'm a firm believer in the free market, as in letting the economy run its course. I do favor some more regulation to prevent what amounts to lying and highway robbery in the market, but as far as relief goes, let the bad companies die, new ones will rise to take their place. If any money needs to be loaned out by the government it should be toward rebuilding the nation's industrial base, the trade deficit has gotten absolutely ridiculous, and no nation, or economy that spends everything yet produces nothing, its just not sustainable.

Not only does the US need to realize this, but the rest of the world as well, the entire world economy is based on 'the US spends, we produce' (to put it in very simple terms) and its all going to come tumbling down eventually. As long as average joe shcmo can keep some sort of job he can at least rent some place, I don't think unemployment will get near as bad as it did during the depression (upwards of 35%).

[Surf314]

I replaced your comments with my rebuttals.

Short Term:

- Interest Only On Loans

This would only be for people that have current mortgages and live in them, I definitely do not recommend this for new mortgages.  These people are already in trouble and if they foreclose now it hurts home prices overall even for people that were smart and can afford their house.  This way they have three years to get their affairs in order and they are doing it with their own money that they'd be putting into their equity and the banks are not losing anything.  It is also important that if a sale must occur it not be all at once as it is now but spread out to keep from flooding the market, so this will also create a three year window were people who absolutely cannot afford their home even after paying off their high interest debt can sell at the best time in this window.  Also foreclosures are always quick sales, and trust me I know from my job the prices are always lower than market in foreclosures (usually 10-20%).  A foreclosure sale is the absolute worse for all parties except the buyer.  And even then there is a lot of people that trash the house before leaving.  You need some time on the market, in this market you could need 6-8 months to properly market a property and banks try to sell in 1-2 to whoever will buy.

- Gov't Insurance on Mortgage Losses

This already happens.  Government insures a lot of low income mortgages and other types of mortgages like FHA and VA.  It would just expand the program to banks willing to use foreclosure only as a last resort and ideally they should pay some for this insurance.  Going interest-only short term is just one way of trying to work out a fair solution to keep from foreclosing but as long as they go through these steps first I see no problem in insuring them.  Stopping foreclosures will help ease the oversupply and allow the inventory to be absorbed to normal levels.  Stabalizing the housing market in ways like this will benefit everyone and lower the risk from the insurance.  So in short if the banks are willing to foreclose as a last resort then they can get some protection at that step.  This is not so far out and risks will be minimized.

- Credit Ceiling

But there is no absolute ceiling that applies to every card company.  A person should have an absolute total limit among all credit card companies.  As of now people are just applying for more cards and swapping the balance around.  The total limit for some people is astronomical because they never cancel cards and the temptation to use that limit is great.  Also there is a reward for this because part of your credit score is your available to used ratio.  So canceling cards will hurt your score.  So lets say someone has a $5,000 absolute limit because thats what they can afford to pay off in a year.  They can have one card with a $5,000 limit or two with a $2,500 limit each.  But they cannot have a card with a $4,000 limit and get another with a $2,000 limit.  Let the companies compete for that persons $5,000 allowed limit.

Long Term:
- Finance Education

I think that there should be a counselor available to all people, even the drop outs.  And in some cases it should be mandatory as part of arbitration to help a person work out a mortgage instead of foreclosure.

- College Loans

I think college students are a valuable resource that can be tapped in exchange for scholarships and extremely advantageous loans.  The best part about it is that as these kids are working as financial counselors they will learn so much about what not to do that they will be scared into making the right decisions when it is their turn.

Rebuttal (look up)

[Ianki]

New Deal II

[Surf314]

http://en.wikipedia.org/wiki/FHA_loan

If you really want to get upset read that.  You can easily phase out FHA and replace it with an insurance program with stringent requirements for both qualifying a person and working the mortgage out before foreclosure in the case of a default with incentives to successful workouts.  That would be beneficial legislation.

[CaffeinePowered]

New Deal II

We do need to fix our decaying infrastructure  :-\


In response to what you said surf, Ill give you the first two points since I was assuming you wanted to extend these things to everyone.


As far as a global credit limit goes, I think it just seems somewhat unrealistic because all the different systems between banks, retail stores, and everyone else that puts out a credit card is not linked, and trying to link them might cause a boatload of privacy issues. I think education and such would be a better and far easier solution, educate people on how to plan a budget and you won't need to make a ceiling. As far as people who completely disregard this, I have little sympathy for them.

In terms of the whole economy I'm more concerned with the overall state of our industrial base and our infrastructure. Why do you think they call the area around Michigan/Ohio/Indiana/Pennsylvania the 'Rust Belt', because all the of the factories sit empty, rusting.

Aside from all of this Id much rather the government sink money into environmental issues first.

[Surf314]

As far as the global limit I was thinking of having an opt in system where you can be flagged for a global limit in exchange for getting better rates and so on.  I think overall most people will opt in to it.  And those who think its an intrusion into the rights wont and just pay higher rates.  I may edit that section to include that.

As far as environmental I think there is a real need for the government to create research programs for their own needs and then they can partner with the private sector to share or sell the technologies.  Big areas that need this are military and school.  Many local districts went way overbudget because of gas prices and the cost of bussing kids.  A simple solution would be to research a cheaper alternative that will have a more stable supply - like biodiesel or some sort of electric.  Then for military it is a huge issue that almost all of our military superiority relies on oil just to run it and we don't have control of the supply of oil necessary to do that if the worst happens and we have to rely on ourselves.  So there would be a good opportunity for researching methods of having completely energy independant military bases.  That tech could then be used to help towns and cities become energy independant.

[CaffeinePowered]

As far as the global limit I was thinking of having an opt in system where you can be flagged for a global limit in exchange for getting better rates and so on.  I think overall most people will opt in to it.  And those who think its an intrusion into the rights wont and just pay higher rates.  I may edit that section to include that.

As far as environmental I think there is a real need for the government to create research programs for their own needs and then they can partner with the private sector to share or sell the technologies.  Big areas that need this are military and school.  Many local districts went way overbudget because of gas prices and the cost of bussing kids.  A simple solution would be to research a cheaper alternative that will have a more stable supply - like biodiesel or some sort of electric.  Then for military it is a huge issue that almost all of our military superiority relies on oil just to run it and we don't have control of the supply of oil necessary to do that if the worst happens and we have to rely on ourselves.  So there would be a good opportunity for researching methods of having completely energy independant military bases.  That tech could then be used to help towns and cities become energy independant.

Here's a simple example, if you put solar cells on the roof of your house or business, the federal government pays for 50% of the cost. Subsidize green things, heavily. I'm mostly small government/fiscal responsibility for everything, except the environment, if the planet isn't here there won't be a country any more

[rumsfald]

Personal finance is something that everyone should know and many don’t.  More importantly the lack of these skills by a majority of Americans (even by those that would call themselves financially savvy) is a major drag on the US economy.  A basic financial advisement program teaching the skills of making a budget and how to manage and pay off your debt, as well as the dangers and costs of carrying that debt should be set up immediately. 

There is no good reason why the above isn't already a mandatory part of secondary education in the US.