Opinions And Ramblings By Adam Kmiec On All Things

The Simple Solution For The Credit Problem

So the government thinks the solution is to bail out the companies that got us into this mess.  The government approved a 700 billion dollar package to bail out these companies.  I can solve the problem with less than 1 billion.

The biggest investment people make is the purchase of their house.  It’s safe to say that most people don’t have 300K just laying around and use it to buy the house outright.  The problem at hand is that people are defaulting on their loans; the ridiculous loans they were given by the companies the government wants to use 700 billion to bail out.  With people defaulting on the loans, those banks like AIG, Wachovia, etc. inherit, if you will those houses.  They are saddled with properties instead of cash.  And, banks are in the business of cash, not land.

There are 305,405,919 people in the United States according to the census.  Of those 305,405,919 there are 198,227,009 over the age of 25.  There are 127,901,934 housing units in the United States.  Right now 68.9% of those houses are occupied which translates into 88,124,432 houses that people are living in and would most likely be carrying a mortgage.

The average home price in the United States is $217,000.  For arguments sake and simple math, let’s say people put down 5%.  That means people by a house tomorrow for $217,000 will owe $206,150.  Following so far?  Good.

Rather than give the companies the money, I propose we give the homeowners the money by clearing the books on peoples’ mortgages instead of throwing money at the companies that screwed this whole thing up in the first place.  My proposal would put the money into the hands of those most affected by the situation.  Essentially, this is a redo.  The companies who are responsible get some initial capital, take a bit of a loss, and lose out on the long term interest.  However, they stay afloat and people keep their homes.

Sure, it’s simple math, but the spirit of the idea has a lot of merit.