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Monday, January 30, 2012

Framing the argument

Since today was an insignificant day in finance- the type instantly forgotten by tomorrow, if not sooner, we thought we'd write on a broader concept which affects the US & global economy and which is as much a reason for the stagnation as any policy decision or lack thereof.

Some may call it 'framing the argument' or 'controlling the debate'... really works the same.  In essence, policy makers and their whore corporate media basically frame all policy discussions as 'A' or 'B'.  No option 'C', much less a 'D' or 'E'...  Everything is 'A' or 'B'  They don't trust the populace is smart enough to understand more than two choices and its much simpler to keep people kept in their ideological Left v Right 'pens' like ostriches.

Let's take the current housing crisis.  The big question on Capitol Hill is whether to allow people who are underwater on their homes (their home value on the open market is worth less than the mortgage the homeowner holds) to be allowed to refinance.  This would supposedly save each mortgage holder thousands of dollars annually and hopefully be the difference in enticing someone to continue paying vs simply walking away.  Refinance or Not-  'A' or 'B'.

Yet no discussion of option 'C'-  force the banks who pushed those mortgages, to take a 25% loss and re-calculate the monthly payment and trigger a 25% monthly savings.  A person paying $750/month for example would then pay $562.50 and not have to have the life of the mortgage extended or his/her credit rating adversely affected which is something no one tells you when you apply for a government backed re-financing program.
Or Option 'D'- the Government directly get into the lending market rather than using Fannie/Freddie Mac as a proxy then establishes what we call a  2 to 1 valuation lending policy.  What do I mean?  Concept works like this:  a home is purchased and $300k is needed for mortgage.   The home buyer gets a mtg of $300k but only $200k is expected to be paid back while homeowner is living in dwelling.  The remaining $100k or 1/3rd value is held by the government in a form of 'escrow'  Monthly payments are based on $200k lent to the buyer.

Every month, a nominal fee is paid to the government to hold that 1/3 value.. let's say $10/mo.  Then once the home is re-sold,  the government gets back its $100k from the value of the sale. The rest of the money goes to the seller to pay rest of mortgage and pocket.   What this does is alleviate the financial burden of the home buyer by 33%, the government retains a 1/3 ownership of the home to get repaid upon re-sale, and it benefits the seller because homes are kept at near pre-recession levels so that home sellers can hold some of the 'cards' which buyers now exclusively possess.

There are more options to solving the problems of this financial crisis than simply 'A' or 'B'  Let's quickly take a look at job creation.  All worthless politicians promise to create jobs.  But how?  Its always through corporations.  Lower corporate taxes..  lower taxes on wealthy... they'll take that money and magically create jobs.  Um,, No!  Not how it works in real world.
Notice no one ever talks about an Option 'C' of encouraging individual entrepreneurship at physical brick n mortar locations (not Internet businesses working from your bedroom) via loans or grants which would create immediate job creation of at least on average 4 workers per new business).  Or Option 'D'- establish work apprenticeships in skilled positions with a portion of salary offset via tax credits to encourage more hiring in developing and vital fields from employers who may have limited budgets for hiring.

Now you may think all those other options wouldn't work or disagree in some way with the premise.  The point is, you are thinking.   The more options on the table, the more choices and the more stimulation of thought and discussion.

America prides itself on choice-- 30 different coffee brands to choose from.. 50 different cereals at the supermarket, etc... Yet anything and everything of importance that affects this nation, we're always left to two choices.  Republican or Democrat.  Tax cuts or tax hikes.   Bottom line or common good...

Though politicians don't want you to think outside their constructed 'A' vs 'B' box, there is always an Option C.. and D..  Always.