I’m still seeing a lot of the blame game going on in blogs.  The interesting part of this is it is exactly a mirror image of the real problem going on in our government that allowed this financial crisis to happen in the first place.  Both the dems and repubs have become more beholden to their parties than the have to the American people.  Ideas have come from both sides of Congress and the White House over the past 5 years and all of which were shot down over partisan votes with very little real consideration and no real acknowledgement of a problem existing.  I believe this came about because the country was riding a wave of equity backed spending that was propelled by unsound business practices and nether party had the courage to reduce this wave and be blamed for slowing the economy.  Well the wave got bigger and bigger and then, as all waves do, it crashed down.

I have heard congressmen complaining that they didn’t know what was going on.  This is just an excuse, the chose to turn a blind eye.  From 2004 to 2005 twenty-two states, who have a tendency to work in a more bipartisan fashion, enacted laws increasing restrictions on sub-prime lending.  This added to the six states that had these laws enacted prior to 2004.  If so many states were willing to do this all at once then obviously there was a problem, Congress just chose to ignore it. 

So what do we do?  Well, in my opinion, this new $700 billion Wall St. bailout is a simplistic approach to help all the wrong people with tax payer dollars.  These companies to the risk to buy these loans and should continue to take at least part of the loss.  Fannie and Freddie are on the road to reform, now being beholden to the people instead of the share holders.  Funds should be funneled through these companies to buy these bad loans, but buy them at a discount.  If these loans are bought at 80% of loan value then the companies selling them will still take a loss, just not as big a loss.  This will allow these companies not only to cut their losses but to also get a quick influx of cash to allow normal operations without having to go through the 3 to 6 month foreclosure process plus 9 to 18 month marketing time, which is good for them.  Part two of this plan should include the government to be able to force options to purchase fixed rate, full doc, low risk loans from these companies equal to 50% of the amount of bad debt loans bought.

Why all the extras?  Buy buying these loans at 80% it increases the government’s asset to liability ratio allowing a greater recuperation of monies down the road that will cut down the overall taxpayer cost in the long run.  This also gives the government more flexibility to work with the homeowners on restructuring their loans into something they can afford, and cutting the price tag on doing it.  With solid loans on the books from the get go it will bring in an immediate income flow to help further funding of loans by Fannie and Freddie and allow them to pay for their normal operating procedures.  Finally, it will stop Wall St. firms and other companies that are already lining up for their share by putting a cost to them for this bailout.

Even with this approach it will be an expensive project for the government, but it will be less expensive, at least in the long run.  It will also do more to help the people that government should be helping, the taxpayer.

Of course, none of this matters if government does nothing to correct the problems that caused this in the first place.  For my opinion on that please read here.