Plan Orange for Mortgages: Immolate the Crisis 14 comments
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Burn the skunk. Kill the financial crisis. It’s simple enough. Pay down mortgage debt of all property owners to 80% of today’s value.
It’s a cool $5 trillion to pull this off; or it requires retirement of $5 trillion of “face value” mortgage debt (see chart). Not cheap. I agree.
Who said it's cheap to pay for a credit bubble?
Obviously it’s a crazy idea, but isn’t it logical for a crazy problem to have an insane solution? Don’t’ get it? Refer to the novel Catch 22. Then get back to me.
The purpose of this outrageous plan is to make mortgage debt affordable and to strengthen the owners of mortgages. It is defined more fully in the four stories and three charts linked immediately below:
- Crisis Solved: Introducing Plan Orange for Mortgages
- Killing Catastrophe: The Argument For Plan Orange for Mortgages
- Bankrupting Leverage: Plan Orange & Money-Center Banks
- Bill Gross Accepts Jesus: Plan Orange & Systemic Conversion of Debt to Equity
- Plan Orange for Mortgages (chart)
- Plan Orange for Money-Center Banks (chart)
- Plan Orange for Private-Sector Debt (chart)
It’s an overnight bankruptcy filing for high-debt homeowners with the clear end and obvious intention of reviving a consumer-driven economy. It also radically changes for the better the scary world of ruined mortgage investments. Our banks are sorting their lives out after decades of massive mortgage-drug addiction, and relapse is a very real risk.
The name of this plan is Orange — Plan Orange. It is instant death for our mortgage and housing disaster.
To begin with, it immediately eliminates fire sales, forced sales, short sales, foreclosure sales, and get-me-the-hell-out-of-here sales. It eliminates delinquent mortgages. Can I say that again? It eliminates all delinquent mortgages. Not a bad start, eh?
Get rid of all distressed sales, without artificially stimulating prices, and supply falls drastically. Have you heard of supply? It frequently affects price.
Any home owner qualifies. All ordinary means for qualifying for a mortgage are eliminated including the need for income, good credit, occupancy of the property and savings. Is the price tag reasonable? No. Do the persons who will benefit deserve the assistance? No.
Then why do it? The brutal logic of Plan Orange for Mortgages is that a wildly gargantuan debt destroyer must be deployed to blow up our gargantuan twin monster bubbles in mortgages and property.
Here’s our choice. Pay the bill now or pay it later. It still must be paid Jack. Why not kill the horse? Every leg is broken. Besides that, the horse is dead already. You can’t save a dead horse with four broken legs. Have mercy. Send it to the glue factory.
The smart way is the fast way. Plan Orange turns on a dime. Better to get back to business now. The world awaits our intelligent courageous leadership. Bring on the worst you can say. I will correct the formula, or answer your question.
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This article has 14 comments:
1) It's less than half the cost currently committed to bailing out the financial industry.
2) It directly bails out the least culpable party in the engineering of this disaster: the borrowers.
3) It eliminates the retarded notion of double-paying for defaults, subsidizing both the bank and the insurer for the same failed mortgage.
4) It (presumably) forces refis to sensible mortgage products (i.e., 30-year fixed). This would eliminate the wave of ARM resets currently predicted to drive more foreclosures.
Cons:
1) A year or two ago I would've agreed with everything you said, but now, with unemployment skyrocketing, there are still plenty of defaults that no extreme write-down will prevent. How will this plan stem the tide of foreclosures driven by factors other than negative equity?
2) Will it cease fire sales of previously-underwater borrowers? I'm an underwater homeowner. I feel burned by the industry and market. I want nothing more than to be rid of real estate forever. I gave up on ever recovering my original down payment a long time ago. If I suddenly had 20% equity, I'd still probably sell as fast as I could, quite possibly at a 20% discount just for a fast sale, more if I could afford it, just in case another economic clusterflock befalls us again.
3) Since personal responsibility is always shouted about, while corporate responsibility is typically ignored, should the credit ratings of these bailed out borrowers be affected? I think a full-on foreclosure stamp is harsh, but /something/ seems appropriate, don't you think?
4) No politician will ever vote for this, as they know what it will do to them next election. :-)
This plan actually would give only the responsible borrowers a write down to 80% of the current value of their real estate. Whether or not they have a mortgage.
There are alot more of us than the irresponsible types that chose to overleverage or simply not make payments because they are "upside down". I guarantee this would jump start the econmy immediately, and would soon enough weed out the people that didn't deserve to be home owners in the first place!
How about we add to this full recourse. meaning there would actually be consequences if you choose to walk away from your mortgage!
1/ Transfer distressed or underwater properties to a Custodian (the entire securities market is held by custodians).
2/ Set a reasonable and "affordable" rental, and index link it.
3/ Divide the resulting "Pool" of affordable index-linked rentals into proportional Units eg billionths, and then find investors in the resulting new asset class.
The outcome is close to a REIT, except that the Units in this one are actually redeemable against property occupation.
Anything occupiers pay more than the rental buys them Units (analogous to equity) and if they maintain the property they get an allowance of "sweat equity".
Unitisation is not Rocket Science, and it's not debt either.
PS It's better than suing all the lenders and cohorts who pretty much singelhandedly created the debacle. Who can really say they didn't ruin the industry?
On Jul 05 11:58 AM 20dollar wrote:
> How about plan Green?
> This plan actually would give only the responsible borrowers a write
> down to 80% of the current value of their real estate. Whether or
> not they have a mortgage.
> There are alot more of us than the irresponsible types that chose
> to overleverage or simply not make payments because they are "upside
> down". I guarantee this would jump start the econmy immediately,
> and would soon enough weed out the people that didn't deserve to
> be home owners in the first place!
> How about we add to this full recourse. meaning there would actually
> be consequences if you choose to walk away from your mortgage!
On Jul 05 12:15 PM ChrisJCook wrote:
> Debt is sooo last century....
>
> 1/ Transfer distressed or underwater properties to a Custodian (the
> entire securities market is held by custodians).
>
> 2/ Set a reasonable and "affordable" rental, and index link it.<br/>
>
> 3/ Divide the resulting "Pool" of affordable index-linked rentals
> into proportional Units eg billionths, and then find investors in
> the resulting new asset class.
>
> The outcome is close to a REIT, except that the Units in this one
> are actually redeemable against property occupation.
>
> Anything occupiers pay more than the rental buys them Units (analogous
> to equity) and if they maintain the property they get an allowance
> of "sweat equity".
>
> Unitisation is not Rocket Science, and it's not debt either.
On Jul 05 01:18 PM Joe Adamaitis wrote:
> Been saying it for a long itme. Glad to see someone really has it
> wired. Nice job!
>
> PS It's better than suing all the lenders and cohorts who pretty
> much singelhandedly created the debacle. Who can really say they
> didn't ruin the industry?
Obviously you're a real estate hotshot and still believe the asset class is a winner. I also note that some of your previous comments note that the Banks were taking away your credit lines. Biz is always great when you are liquid, although you must be somewhat les liquid from these actrions by your Bankers. Good to hear your local bankers (small b) are still around to support your efforts. I hope you have a big stack in reserve, congtratulations on your success of 25 years.
You do however need to realize that a note secured by real estate is a contract. There is nothing moral or immoral about it. The terms may be unconscionable or not, but there are options and remedies written into the document. Both parties have options. As to your, and others, rants about "irresposible homeowners" you really need to get off your moralistic high-horse. Markets and situations change, which has been more than obvious over the last several years. Both parties, Lenders and Homeowners, entered into to these contracts to benefit themselves economically, so your moral obligation argument does not hold water. Now, if you were personally lending to your son, I might agree with your feeling of betrayal.
Nonetheless, I wish for you that your real estate appreciates, your access to credit remains plentiful, and that your stack never gets too short to experience a less than blissful night's sleep.
Its kind of like partially bulldozing the debt without having to actually bulldoze the properties.
I have been there done that. How do you think I have managed to become so successful?
I have been in the situation of being upside down on real estate and chose to sell, loose money and move on. It not only was morally the right thing to do, but it ensured there were no dings on my credit to show lenders in the future that I am an excellent credit risk-no matter what happens to the secured asset.
I do beleive there is a moral obligation to pay your debts as you agreed to-whether or not it is your son/daughter etc. And whether or not the secured asset looses value. There never have been any guarantees that Real Estate always increases in value. Oh, but if it does not, it's OK to let the bank take the loss (ya know they have a bunch of money any way) and you are on the hook for nothing?!?! That is simply wrong.
I treat any business partner/lender as if they were my son or daughter. Apparantly you and the majority of America doesn't. Hence the reason we are in the mess we are in now.
Now if there were truly usurious terms that were not fully disclosed, I would probably pursue legal action against that lender. Although I have not had that problem yet, and I have had many, many loans, lines of credit etc. A large percentage of the borrowers now defaulting were not subjected to usurious terms.
There needs to be an enforcable full recourse clause in the contract. That way people may think twice about defaulting because they actually might have to pay it back. They sure don't seem to think it is morally wrong!
On Jul 05 07:23 PM pitchingpennies wrote:
> 20 Dollar,
>
> Obviously you're a real estate hotshot and still believe the asset
> class is a winner. I also note that some of your previous comments
> note that the Banks were taking away your credit lines. Biz is always
> great when you are liquid, although you must be somewhat les liquid
> from these actrions by your Bankers. Good to hear your local bankers
> (small b) are still around to support your efforts. I hope you have
> a big stack in reserve, congtratulations on your success of 25 years.
>
>
> You do however need to realize that a note secured by real estate
> is a contract. There is nothing moral or immoral about it. The terms
> may be unconscionable or not, but there are options and remedies
> written into the document. Both parties have options. As to your,
> and others, rants about "irresposible homeowners" you really need
> to get off your moralistic high-horse. Markets and situations change,
> which has been more than obvious over the last several years. Both
> parties, Lenders and Homeowners, entered into to these contracts
> to benefit themselves economically, so your moral obligation argument
> does not hold water. Now, if you were personally lending to your
> son, I might agree with your feeling of betrayal.
>
> Nonetheless, I wish for you that your real estate appreciates, your
> access to credit remains plentiful, and that your stack never gets
> too short to experience a less than blissful night's sleep.
Why not be more explicit about who should pay? You of course mean "TAXPAYERS should pay down the mortgage debt HELD BY BANKS". So-called property "owners" (in actuality: "real estate borrowers" might be more accurate as they own very little property in fact) hardly come into the picture as they will benefit from this plan not at all. This is a straight wealth transfer from taxpayers (producers of real value) to banks (leeches). It is immoral, it won't work, and it won't happen.
As a side note, what you propose is not a "debt destroyer", it's a debt transfer. You are quite correct that debt will be destroyed, that is inevitable at this point; but it will be destroyed through default (mostly) or repayment (just a little bit). Default will wipe out the shareholders in all banks, REITs etc, and it will give bondholders a significant (not total) haircut, but it is not the end of the world, certainly not as far as anything in the real economy is concerned. If we want to do something constructive, we should accelerate that process. To that end, let me propose ...
The certain outcome of this is a wave of bank failures. Let me just say that, contrary to what people think, this will be a very good thing. This country has been taken over by people who produce nothing of real value but who have claims on people who do. What will happen under the proposed plan (which is inevitable anyway, but will be accelerated) will simply zero out those claims, and allow the real economy to move forward. If you are a plumber, a dentist, a farmer, an auto mechanic or even a software developer: Plan Black is quite simply the best thing that can happen to you. In real terms, you will be at least twice wealthier after the transition than before.
Plan Black: build the real economy, end the financial smoke and mirrors.
seekingalpha.com/artic...
If you would like to respond, please do so in comments there. I would be happy to debate with you, since you can be partly credited with prompting me to write the article.
Regards,
-- Rayden