Highlights - Eric's 3 Point Economic Plan


Below is a simplified explanation of the three point plan that I proposed to Congress, the media and about everyone else in beginning in September 2008 with point one and February of 2009 for the remainder; before the stimulus package was passed and before the brunt of our economic collapse.  Hopefully I've included enough of an explanation to that the reader will get the general idea(s).

The main idea is that there are other ways to look at problems other than the self-serving Wall Street, "K" Street, Congressional coalition way; i.e. using taxpayer money to/through the taxpayer in synergistic ways to resolve the problem(s).  The way we did do it has left us in a postion that insures a long sluggish recovery, with a million foreclosed properties sitting empty, and millions of forecolosed upon families with ruined credit that will be of little help to the economy, now unable due to that runied credit to purchase homes, automobiles or other big-ticket items which normally require credit. Add to that inflation of food and fuel, and we may not see a 'booming' economy for many years to come.

1. The Mortgage Default Crisis (Proposed Sep 2008)

Objectives
  • To keep people in homes
  • Keep homeowner's credit intact so that they can continue to be active consumers, including big-ticket items normally requiring credit (i.e. maintain their credit)
  • Keep mortgage payments coming to the banks to maintian their liquidity

Proposal:

Create a real-estate database exactly like those that already exist on the internet.  The difference would be that this is one that banks would use to enter homes that were in the foreclosure process.  This database could easily be done by a major real estate company by simply cloning their existing database on a new server, the Mortgage Bankers Association or whomever.

Homeowners would be given the opportunity to trade down from their current home in foreclosure that they cannot afford, to a home of lesser value that they can afford (based upon an objective analysis of their financial condition).  Often this can/will be another home in their current neighborhood.  For instance, the owner of a $400,000 home could move to a $300,000 home, the $300,000 home owner to a $225,000 home, that homeowner to a $150,000 home etc.  (Essentially 'musical chairs' with homes.

The bank of the home being moved into (since they benefit from gaining continued payments for that home) pays the homeowner moving into that home $1000 towards moving expenses, the real-estate agent $1000 for handling the necessary paperwork, and all title transfer fees.  Also, for their participation in the program, the credit report of the homeowner is cleared of any mention of a foreclosure proceeding, thus maintaining their capability to be a credit consumer in the future.

Those with least value homes and others who cannot afford a home at all are given the opportunity to move to an apartment, releasing their home into the program.  For this they will also receive $1000 to aid in moving expenses, and have their credit report cleared of the foreclosure proceedings, again so that they can continue to be consumers.

As for the top-end homes, by keeping so many people in homes there would be significantly less foreclosed homes on the market allowing the market to rebound sooner, and those homes could then be resold.

At the time of this proposal, before the jobs market collapsed, we probably could have saved up to half of the foreclosures with this methodology, and kept a million families in homes, thus having a million less homes stagnating the marketplace.  This would have had a significant effect on bank liquidity, possibly negating a significant amount of the bail-outs they ultimately received.

Why participate? For the homeowner, a smaller home that they can afford is better than no home, and good credit to make future purchases is better than no credit. For Lenders, they get to continue receiving mortgage payments on many properties that otherwise would have borne the cost of foreclosure, plus perhaps a loss on the property itself when it sold in forclosure.  With less foreclosures, the banks would not have needed such big bailouts, there would have been less bank failures, and the economy might not have collapsed nearly to the degree it did.  Even in the current environment, a program like this could keep many homeowners in homes they could afford and save their credit rating.


2. Bank Bailouts (Proposed Sep/Oct 2008)

Objective: To provide capital to banks to increase their liquidity utilizing taxpayer funds, THROUGH the taxpayers themselves, while in the process insuring payback of the funds, significant economic stimulation, and incentive for banks to continue lending; especially to small business.

Note that if Item 1 had been accomplished the extent of the bailouts required may have been significantly less.

Proposal:

It is proposed that to whatever funding levels are required, the government offer loans of up to $10,000 to those taxpayers earning under $100,000 at 2% interest (numbers can be adjusted as required).  It would be stipulated that loan could only be used to pay off or pay down an existing credit card/consumer loan, and rather than writing the check to the taxpayer, the taxpayer will provide the treasury with the pertinent information to have the money electronically transfered to pay down or pay off that account.

This allows banks to receive an infusion of cash that restores their liquidity. The taxpayer who uses this loan to pay down a credit card that had 26% interest now is paying the government back at 2%, immediately saving them up to $200 PER MONTH in payments, which becomes disposable income that can/will be spent to help boost the economy.

The banks will have received the same cash as proposed with the bailout (decreased by an amount commensurate with savings realized through the implementation of point 1 above, but are themselves "smaller" (in terms of less loans outstanding), which gives them the incentive to again begin lending, especially to small businesses.  The extra money going into the economy rather than the extra profits to the banks keeps the economy from going down and should in fact, grow it. That incremental loss of profit lets the banks feel the pain of the economic collapse along with the taxpayers.

The government gets paid back via the taxpayers loan payments, and makes a 2% profit.



3. JOBS! (Proposed Feb 2009)

Objective: To create a methodology to put up to 5 million Americans back to work within 180 days for significantly less than the proposed $787 Billion stimulus bill. Do it it in a manner where businesses receive the benefit of decreased labor costs that will allow them over the 4 year period, to become extremely competitive in both local and global markets using a U.S. based work force.

General

This plan is based upon an existing government program currently used to get more law enforcement officers on the street.  (DOJ COPS (Community Oriented Policing Service) Hiring Program)  For this example I've set the number of employees to 5 only to simplify the math; obviously it should be like the existing program and be in relation to the size of the business.

Proposal
  1. The government would allow small business owners to each hire UP TO 5 employees
  2. Employees hired must be currently unemployed and either currently receiving unemployment compensation, or have reached the end of their unemployment compensation eligibility
  3. The government will pay each eligible employee UP TO $25/hr or $50,000/year for a period of three (3) years. (NOTE: Employers could hire employees for more than the $50,000, but would pay the difference themselves.)
  4. To participate in the program, the employer must agree to pay each employee hired under the program for one additional year.
  5. The employer must pay all applicable payroll taxes for the full 4 year term.
  6. The employer must pay the cost of any employee benefits for the full 4 year term.
  7. The employer must maintain employee counts throughout the program period. (i.e. cannot hire under the program, and lay off other employer paid employees.)
  8. Additional regulations for the handling of employees discharged or leaving an employer voluntarily.


Cost Analysis

Let us assume that all employees were paid the full amount. Putting 5 million folks to work at $50,000/yr would cost the taxpayers $250 Billion per year,or $750 Billion for the program.

That is $37 Billion LESS than the stimulus package. To make it an even comparison though, I'd take the difference as a "finder's fee... just kidding! I'd settle for a lousy 1%. ;-)

However, the proposed plan will never reach that cost due to:
  • Not everyone would need to be hired at the full amount
  • Those hired would no longer be receiving unemployment compensation, food stamps, etc. offsetting government payouts
  • Those hired would be PAYING IN taxes to the government
  • With jobs, people would again become consumers, raising demand. This would cause other businesses to hire people to meet the demand who would pay taxes, consume, etc.

At the program's completion in 4 years (3 of government participation), the program may well have paid for much or all of its costs.  Note that at the time this was proposed, there were NOT 5 million people out of work... we'd have never gotten to that point!

Modifications

Modifications of the program from the exemplar currently operating government program might include:
  • Employers could hire employees under this program up to a number equal to 10% of the number of employees currently employed.
  • Modify government contribution such that the government will subsidize 100% of each employees salary/wages (up to a miximum of $50,000/yr) the first year, 80% the second year and 60% the third year. This still provides sufficient motivation for employers to hire, and significantly decreases the cost. This would make the absolute maximum cost of the program $600 Billion, with a realistic cost in the neighborhood of $500 Billion since not all employees would be hired at the maximum amount. (Since employers would have to pay the full 4th year themselves.)



Analysis/Discussion

If we had only done #3, (Jobs) 5 million people could have been back to work by the end of 2009. For that first year it would have cost us a maximum of $250 Billion (if every worker was paid the $50,000/year maximum which wouldn't be the case), less a year of unemployment paid, less a year taxes paid, plus the additional taxes paid by businesses and additional workers because those people would have been consuming, and creating more demand.  Moreover, with this labor cost structure, businesses would be better able to compete and better establish themselves in both local and global markets making them even more profitable (and therefore paying in more taxes to the government). Perhaps the cost to date to have had a year of a humming economy would be down to $150 Billion... And how many fewer foreclosures would there be right now due to folks losing their homes because they were/are out of work?  They'd still be in their homes, the banks would still be getting their mortgage payments.... and then on to the world.  If we had gotten those folks to work by December of 2009 and stemmed our foreclosure crisis putting the banks on a firmer footing... and our economy had spun back up, how many other country's economies would also have benefited?  How would that have helped our foreign trade? (You know what they say; a trillion here, a trillion there and pretty soon you're talking about some serious money!)

Would we have needed QE2? (Quantitative Easing, a fancy term the Fed uses to describe monitizing our debt; not a good thing, and something for which other countries have already threatened economic retaliation.)

This is modeled after an existing program. Do you think Congress was unaware of this? Think again. What we got was the result of an 'unholy' alliance of the Wall Street, "K" Street (lobbyists) and Congress coalition.  Democrats wanted to use stimulus to repay the unions, fund pet projects (Marsh Mice in San Francisco, cocaine for monkeys), etc.  Republicans didn't want to see Obama fix the economy and get the credit, so they never said anything.  Seems like political games were more important than solving the problem(s).

So the folks are out of work and losing their homes. We're on the economic brink and resorting to monetizing our debt. Who's looking out for you???

If YOU are out of work, send a Thank You note to your representatives in Washington. Their programs are good enough to keep law enforcement working, but not the "little folk" even when it would have cost significantly less than what they spent.

Here is the reference to the DOJ site (the PDF explaining their program):
<http://www.cops.usdoj.gov/pdf/fact_sheets/e051027282-CHP-FactSheet_093010.pdf>