Thirsty : March 2009 : The Great Do-Over

By: s.i. wells

Ingrained in our psyche is our homage to greatness. We are so fixated on the word “great” that it probably represents some hardwired circuit in the human brain. We revere greatness. We laud it. We write, speak and ruminate on it.

We have: The Great Depression, The Great Wall, The Great War, The Great Beyond, The Great Lakes, The Great Pandemic, The Great Chicago Fire, The Great Dictator, The Great San Francisco Earthquake, The Great Outdoors, The Great Barrier Reef, The Great Gatsby, The Great Seal of the United States of America, The Great Sphinx, etc…etc…etc.

So here we are in 2009, and I think it is time to invent a new “Great” for the ages. We certainly have sufficient fodder floating around the globe. We have wars, famine, genocide, global warming, pollution and more. But we always seem to have those things year-after-year. Nothing really new about any of them. Nothing really “great” - just routine behaviors that get the human race into trouble. And, thus, none of them deserve to be anointed as “Great”.

However, there is one topic that deserves serious consideration. The global financial crisis seems to have all of the requisite elements to qualify. The complete disintegration of the world’s financial markets, still in the early stages, should wreak enough pain and suffering on humanity to win the greatness award. As countries and regions work to shore-up their individual economies reeling from the implosion of their banking systems, we have seen a laudable “one for all” attitude thus far. Of course, the operative words are “thus far”. When central bankers from everywhere run out of tools to defy the gravitational pull of financial ruin, we will certainly see a change in policy as an “every man for himself” philosophy emerges. The European Union and its constituent countries are probably the best canaries in the coalmine to signal the beginning of this nasty change in attitude. And then…the euro will be history.

Bleak, depressing, grim…certainly words that accurately describe the financial health of the developed planet. We could probably stop right there and name this era “The Great Debt Bubble” and most people would be completely satisfied.

For me, however, that is just too depressing and way too negative. I would rather offer a few policy solutions to right the financial boat and let America move forward. To be mired in the greatest global financial collapse ever is to decry all the good things that have been accomplished, especially in the fields of technology, science and medicine.

My suggestions are rather simple. First, take all the accountants out for a walk in the desert and just leave them there. Their rules have helped to destroy some of the “great” companies. Of course, behind the accountants, I would march the regulators who drank the Kool-Aid and the Wall Street geniuses who invented the hemlock that poisoned the golden goose or, in this case, anyone with a house, a car or a credit card. And, bringing up the rear, I would take the people who invented the home equity loan. During the last generation, great stores of wealth have been unlocked via this mechanism and today the cupboards are bare.

Now that we have gotten rid of many of the major culprits, I would invent “The Great Do-Over”. I would penalize the lenders who made the loans that became toxic and let them take the losses. This would include banks, securities firms and the like. If, for example, a bank gave someone a $500,000 mortgage on their principal residence and that house or condo or trailer was now worth $400,000, I would adjust the mortgage balance down to 80% of that new value and cap the interest rate at 8%. The bank would suffer the economic difference and the homeowner would be given another chance with no tax consequences. It would be a homeowner “do-over”. This would apply to all homeowners not just the delinquent or insolvent ones. And for this one-time benefit, the homeowner would be prohibited from refinancing this residence in the future for more than 80% of the fair market value. (If someone owned more than one residence, this “do-over” would only apply to his or her principal residence. Frankly, I think the second home mortgage deduction should go away, too, because it is unfair to the people who can only afford one home.) With auto loans, I would do the same. Let the banks or financial institutions that made these loans and the professionals who should have known better suffer their own handiwork and let ordinary people get on with their lives without fear of losing their home or their car. And, lastly, I would take all of the credit card debt owed by people (not corporations), cut it in half, cap the interest rate that could be charged at 8% and march in the anti-trust regulators to examine the credit card company mergers that have gone on unabated for the last ten years. The concentration of power in the hands of the few has had a major corrupting influence on the entire credit card system.

It is time to let the financial institutions and their stockholders and their bondholders face the music and pay the bill for the bad behavior of the professionals they employed. Stop the negative feedback loop spiraling us toward depression and place the blame on the people who are to blame. It is time to get the great, industrious and caring people of America back doing what they do best rather than living in fear of losing their home or car or reputation. It is time to move this country ahead. It is time for “The Great Do-Over” and tomorrow wouldn’t be too soon.