FORGET The Wall Street bailout . . . what about a consumer bailout?

By l.t. Dravis

WASHINGTON, D.C. – Monday, November 3, 2008S – Millions of Americans are not only upside down on their mortgages, they’re also upside down on credit card debt, car loans, student loans and other debt, and have no way to create any more buying power. So, if consumers can’t borrow to buy, how on earth do the Washington gurus who engineered the $700 billion bailout think freeing up the credit markets will have any meaningful impact on the economy?

Auto sales in October were down by 45% for General Motors, down by 30% for Ford, and down by 23% for Toyota.

Circuit City announced today that it is closing 20% of its stores nationwide, costing more jobs and reducing sales tax revenues.

The Institute of Supply Management reported today that its manufacturing index fell to 38.9, the lowest reading since September, 1982 when the United States was in the depths of a recession.

Why all the bad news? Because consumers can’t tap credit cards and they sure as heck can’t rely on home equity any longer, now can they?

If consumers – homeowners plus nearly 100 million renters – are buried under mountains of debt, how do Ben Bernanke, Henry Paulson, et al, expect them to take advantage of the freer credit supposedly created by the $700 billion bailout and spend the economy out of recession?

Bernanke, Chair of the Federal Reserve Board, said Friday that “The boom in subprime mortgage lending was only part of a much broader credit boom characterized by under pricing of risk, excessive leverage, and the creation of complex and opaque financial instruments that proved fragile under stress. The unwinding of these developments is the source of the severe financial strain and tight credit that now damp economic growth.”

Translation into plain English: The Wall Street bailout won’t be enough to turn the economy around because subprime mortgage lending is only part of the problem.

Consumers need a restructuring of a variety of types of debt, including car loans, credit card debt, mortgages, student loans, and other debt.

Why?

Because trillions of dollars of current debt prevents consumers from purchasing future trillions in products and services.

So, how do we restructure consumer debt?

We turn it into a profit center for the federal government by purchasing all forms of consumer debt at a discount and restructuring that debt to be paid over extended periods of time, plus a fair rate of interest.

Let’s say that a consumer owes $25,000.00 in credit card debt, $10,000.00 in student loans, and has a $15,000.00 car loan. The total debt of $50,000.00 would be purchased from creditors by the federal government for $40,000.00 and would be secured by tangible property (in this case, the car would be released to the consumer upon receipt of a cash payment or cumulative monthly payments equal to its appraised value). The debt would be paid back by mandatory withholding of monthly payments of $421.93 from the consumer’s paycheck income and/or business income and tax refunds for a period of fifteen years at 6%. This example would generate a gross profit for the taxpayers of $35,947.40.

If a homeowner owed $300,000.00 on a mortgage, $25,000.00 in credit card debt, $10,000.00 in student loans, and had a $15,000.00 car loan, the total debt of $350,000.00 would be purchased from creditors by the federal government for $315,000.00 and would be secured by tangible property (in this case, title to the home and the car, either or which would be released to the consumer upon receipt of a cash payment or cumulative monthly payments equal to the appraised value of either item). The debt would be paid by mandatory withholding of monthly payments of $2098.43 from the consumer’s paycheck income and/or business income and tax refunds for a period of thirty years at 6%. This example would generate a gross profit for taxpayers of $439,434.80. If the home is sold prior to repayment of the loan, the federal government would be entitled to half of the profit but would not sustain a loss.

Consumers, irrespective of current credit rating, would qualify provided they can prove the ability to make monthly payments, agree to attain a minimum 700 FICO score within 24 months, maintain all appropriate forms of insurance on collateral, and file state and federal tax returns, subject to annual audit, on time. There would be no prepayment penalties.

Consumers who serve the nation would be credited with a portion of the monthly payment, dependent upon service rendered. For example, those who serve in the armed forces could receive 75% credit of monthly payments for their period of service, without limitation. Others who teach in inner city schools or practice medicine in rural communities could receive 50% credit of monthly payments for their period of service, without limitation. If then, a homeowner served in the military or taught in inner city schools or served in another approved vocation for thirty years, he or she would able to retire, debt-free, with a paid-for home, and with a substantial retirement income. Done right, we could create a generation of financially secure retirees in this country by 2038.

This approach strengthens the economy in a number of ways:

1. Billions of dollars in buying power are freed up for consumers

2. Consumers who take advantage of the program will manage future credit wisely

3. Banks and other financial institutions are relieved of potentially devastating losses and exorbitant collection costs

4. Small, medium, and large businesses – including service, manufacturing, distribution, transportation, and retailers – benefit from immediate, managed consumer purchasing power

5. Credit markets are stabilized and become predictable and profitable

6. Taxpayers become shareholders in the U.S. economy because they accumulate profits that can be used to lower taxes, offset government spending, and pay down the national debt

Because a consumer bailout is politically distasteful, it would take courageous, thoughtful, intelligent leadership and cooperation on the part of government, business, and consumer groups to fashion a viable program . . . but the risk of not creating a meaningful way to unburden the primary source of economic driving power in this country – the everyday, average consumer – may be fatal for the nation’s economy.

So, it’s time to make a decision . . . which way do you want to go America . . . up or down?

Copyright © 2008 by LTD Associates West, Ltd. All rights reserved.

If you have questions, comments, or concerns, Email me at ltdassociates@msn.com (goes right to my desk) and since I personally answer every Email, I look forward to hearing from you soon.

Want to go to a Blog that listens to you and speaks for you as well?

GO TO bothsidesnowbiz.blogspot.com/ AND SPEAK UP . . .