Alex Hopmann’s Blog

With all this fun talk of the $700B bail-out, I’ve got two alternative ideas. Both I’m sure are really bad for all sorts of reasons, but worth throwing out there anyway.

First of all, has there been any talk of how we are going to PAY for the $700B? Traditionally taxes are often paired with the destination of their revenue somehow (in theory, although the reality is that its often BS). For example, your gas taxes often theoretically pay for transportation improvements. So why not add an extra 10% to the capital gains tax until the $700B is paid off. In theory capitol gains taxes are the ones most associated with the kinds of investment activity that was going haywire here. They are the ones that you pay on big profits you make on your house price going up (a source of capital gains revenue that I’m sure will be much smaller for the next few years). They are also typically very unpopular with the Wall Street crowd, so it would be interesting to see how much support the bail-out has if paired with the capital gains tax increase.

The second (bad) idea goes like this. $700B is a lot of money. Really. What if instead of funneling it to the banking institutions you just wrote $70,000 checks to 10 MILLION home-owners that screwed up badly on their mortgages. Its not like either way we are talking about bailing out someone who was totally innocent here, but compared to the home-owners, the industry guys should have known better. With 10 million homeowners having an extra $70k in their pockets, it gives them opportunities to either sell their houses with the money helping with some of the losses, or give a cushion to make their mortgage payments for a couple of years, or whatever. Either way it should trickle-up and reduce the defaults on those loans, reducing the liability that the financial institutions hold, helping out the whole economy. Presumably you could create some system where the money has to go either to mortgage payments or house settlements to help avoid the “go blow it all in Vegas” problem somewhat. There would be no way to avoid certain kinds of abuses, but then again the “give the bailout to the industry” proposals have that same problem too. And yes, it is rewarding the people who screwed up but the existing proposal has that problem too. At least this way you give the opportunity for 10 million families to have a real shot at digging themselves out of a hole they got themselves into and I don’t really see how the existing plan does that at all.

The big flaw with my second (bad) idea is that I think the folks proposing the $700B bail-out are assuming they are going to get some of their $700B back and that the real price-tag won’t be that bad. But given that they haven’t proposed any rational way to price the securities from the industry and that it doesn’t seem like they are driving a hard bargain for equity and that the government seems like a poor choice of institution to manage the loans and efficiently collect on them, the notion that somehow we (the taxpayers) get our money back seems like a long shot.