Posted On: September 29, 2008, 6:24 am CDT

Posted By: KO

BAIL THEM OUT WITH THEIR OWN MONEY. WHY SHOULD I HAVE TO PAY FOR SOME IDIOTS RUNNING THE FINANCIAL SYSTEM:

THE DISREGARD OF FUNDAMENTAL ECONOMIC PRINCIPLES OF SOUND PRACTICE IS WHAT HAS BROUGHT US INTO THIS NATIONAL MESS.

WHAT ASTONISHES ME IS HOW ANY KIND OF REASONABLE RESPONSE TO THIS CRISIS HAS BEEN IGNORED BY THE GOVERNMENT IN WASHINGTON , BY THE POLITICAL CAMPAIGNERS, AND BY THE NATIONAL MEDIA.

THE CLUE IS TO LOOK AT REFORMS REGARDING FUTURE PRACTICE, AND TO DRAW FROM THOSE CONCLUSIONS SOME FIRM IDEAS AS TO HOW TO DEAL WITH THE CURRENT CRISIS.

FIRST:
BANKS AND OTHER INITIAL MORTGAGE GRANTORS SHOULD BE PROHIBITED FROM PACKAGING AND SELLING MORTGAGE INSTRUMENTS TO THIRD PARTIES. THAT WOULD MAKE THEM LOOK CLOSELY AT THE CREDITWORTHINESS OF POTENTIAL HOME BUYERS.

THE PRACTICE OF ADJUSTABLE-RATE MORTGAGES SHOULD BE MADE ILLEGAL. THE INITIAL AND FIRMLY FIXED MORTGAGE RATE SHOULD REFLECT THE RISK INHERENT IN INTEREST RATE FLUCTUATIONS.

SECOND:
THE PROHIBITION OF ADJUSTABLE-RATE MORTGAGE PAYMENTS SHOULD APPLY TO EXISTING MORTGAGES. THE INITIAL RATE CHARGED SHOULD BE SET IN CONCRETE, ABJUGATING THE INCREASES CHARGED TO MORTGAGE HOLDERS.
THE CONVERSION TO INITIALLY OFFERED INTEREST RATE ON OUTSTANDING MORTGAGES WOULD REDUCE THE "TAKE" BY WALL STREET ON EACH MORTGAGE, BUT WOULD STOP THE FLOOD OF FORECLOSURES.
THE LOWER RATE OF RETURN WOULD DEVALUE THE PACKAGED SECURITIES HELD BY THIRD PARTIES, BUT WOULD SOLIDIFY SOME LEVEL OF VALUE IN THEIR HOLDINGS.
IN ORDER TO PROTECT AGAINST FORECLOSURES, THE EXCESS ABOVE INITIAL RATE WHICH HAS BEEN PAID IN THE PAST, WOULD BE APPLIED TO THE REMAINING PRINCIPAL OWED BY THE MORTGAGE HOLDER.
I BELIEVE THAT THESE STEPS WOULD STABILIZE THE MARKET SUFFICIENTLY, WITHOUT ANY MASSIVE "BAILOUT" BY TAXPAYERS.
IT IS UNFORTUNATE THAT SUCH REASONABLE REFORMS HAVE NOT BEEN DISCUSSED, SINCE THEY OFFER BOTH SHORT-TERM AND LONG-TERM CORRECTIONS TO A FINANCIAL SYSTEM THAT HAS INNOVATED ITSELF BEYOND REASON AND FIDUCIARY RESPONSIBILITY.