I'm tired of this. First the market goes up 300 points, then it slips 200 points. Everyone on TV and in the blogging world is either euphoric or panicking as one united herd. Everyone out there agrees on one thing: the world is a better place if we all had more money. And the government right now is getting a free ride because of the deflationary death spiral we could potentially enter (in which the final outcome is global nuclear disaster between all nations). So here's a plan by which the government can once and for all solve all of its problems.
1) Allow ALL homeowners to simply refinance their mortgages with current mortgage rates. I met someone yesterday who bought a $1mm home a few years ago. Now its worth $900k. He borrowed $500k at about 6-7%. Now with mortgage rates at 4.5% he can't refinance despite a 780 credit score. Banks have severely tightened lending standards. The government should allow Fannie (OTCQB:FNMA) to reduce lending standards so every one of their 37mm mortgages can refinance at lower rates. The benefits of this are:
A) less defaults. At the end of the day, Fannie Mae has the same credit risks: i.e. they can end up owning all the homes. Much better for them if people don't default.
B) The taxpayer makes money. The government borrows right now at 3%. They make money if they can lend out at 4.5%
C) massive stimulus. Morgan Stanley estimates that $46bb annually will be saved by consumers.
D) home prices will go up.
It's a trifecta. Consumers make money, the government makes money, no taxpayer bailout is needed.
2) The Fed should buy S&P futures on the open market every day between 9:15-9:30 and 3:30-4 and other random times during the day. Benefits include:
A) People don't care about housing or unemployment (the unemployment rate among college educated is at 4%). People care about their daily fluctuations in net worth. That determines their spending decisions which then is directly put into GDP growth. Stocks up = people happy. Just check out the suicide rate between November, 2008 and March, 2009.
B) The Fed right now is prepared to spend another trillion buying mortgage backed bonds. Listen, mortgage rates can't go any lower and it's useless anyway. It's not creating lending. It's completely worthless. Instead of spending a trillion, spend a billion a day for 100 days buying S&P futures. You save money.
3) States should sell everything. We all know the states are a mess. They can't pay their bills and their future obligations. They have three choices: raise taxes, cut spending, or sell assets. It's politically impossible for them to do the first two. So here's what they have to do:
A) Sell off all the colleges. Heck, the University of California system alone can go for over $60bb
B) Sell off all the highways. NJ can sell the Turnpike for $30bb and pay back half their debt. And a private operator will be more efficient anyway.
C) Sell off all the bus stops, hospitals, train routes, etc. Does the government really need to be in the business of running a bad hospital? Let's make some money, pay off the debt, and keep state government out of our lives (and probably get better run schools, hospitals, etc).
4) Simply give a 20% refund check to anyone who paid taxes in 2009. Benefits:
A) Will encourage people in the future to pay taxes (heck, it could happen again)
B) That 20% refund (10s of billions) will have a multiplier effect in the economy and come back in even greater numbers to the government in future taxes.
Who will benefit?
Assured Guaranty (NYSE:AGO) - which insures municipal debt, trades for 4x earnings, and is partially owned by super-investor Wilbur Ross at higher prices than current.
Lender Processor Services (NYSE:LPS) - which helps process mortgages for the banks (and foreclosures)
Fannie - less people will default on their homes
GS - because they rule the world and everything that gets us more money helps them.
BRK.A - because people will start buying furniture again for their now over-water homes.
Disclosure: Long AGO