Wednesday, September 24, 2008

Bailout Lotto!

One of my best friends, Gerry Rosenfeld, is what I call a "fringe-thinker." He is better at distilling "the essence" of an issue than anybody I know, and he ran one by me yesterday, and for the life of me, I can't find any real downside, except that it SOUNDS too fringe.

He started with a very nonsensical principle: don't reward error.

He asked, "Why in the world would anybody give $700 billion in bailout money to the very people who caused the crisis in the first place?" I agree. Isn't that like giving more explosives to the guy who accidentally blew up his house while saying, "Be more careful!"

At the same time, we all recognize that: (a) the economy is struggling; and (b) SOME average people will take a hit to their 401(k) accounts and IRAs if their investments are in any stocks or mutual funds with mortgage-backed securities. While the free marketeer in me says, "They chose poorly, make them live with their choices," very few average investers could have seen this coming.

So, how do you get the economy going and get these companies "liquid" without giving control back to the clowns who "wrecked the engine," as Gerry says.

How about a national lottery?

Everybody in this country who pays taxes is registered by social security number. The government puts its $700 billion aside. Then the government runs a national lottery and draws, say, 3,500,000 random social numbers. If you have an existing mortgage, or are living in a home subject to foreclosure (but not yet foreclosed), the government will cut you a check (paid directly to the mortgage company) for the entire amount.

If your social security number is selected and you don't own a home, the government will put 20% down for you on any home for which you can qualify on a fixed-rate, 30-year mortgage with a monthly payment that is, say, 60% or less of your gross income.

(Gerry's idea didn't require the winners to buy existing homes, but consuming the existing market seems beneficial, so maybe you give 10% down on new homes and 30% down for purchasing an existing one. Also, Gerry didn't introduce the "60% of gross wages requirement," which I pulled out of a hat, but it seems important to ensure that people don't take their government largesse and overbuy again by virtue of that subsidy).

This plan would stabilize the realty market and stimulate the economy because every person whose mortage is paid off can now either invest or inject into the consumer stream their saved mortgage payment.

If people say, "Yes, but this plan might benefit wealthy homeowners who aren't even struggling! What if Bill Gates is selected!?!?!" Okay, then maybe you interject "progressive" provisions. One might be that the government would only pay off mortgages of $200,000 or less. Another might be that the government will give the $200,000 if it (a) either retires the entire mortgage; or (b) allows a homeowner with a mortgage balance of greater than $200,000 to refinance to a fixed-rate mortgage that saves the homeowner at least 50% monthly over the prior monthly mortgage amount. The goal is to get saved mortgage money into the economy quickly while paying off as many mortgages as possible. When the money runs out, the government stops picking social security numbers.

While opposition to the "give the crooks the money" bailout is mounting, this lottery idea would be overwhelmingly supported by the American public. The approximately 180 million taxpayers would each have a 2% chance of winning. That's better odds than ANY other lottery in America, but this one you get to play FOR FREE.

People will be surprised I know a Garth Brooks lyric (though ONLY this one, plus that one about "friends in low places"). Anyway, in his song "The Dance," Garth says, "Our lives are better left to chance." Maybe so is a government bailout.

ADDENDUM: Gerry read my post, and he offers these thoughts.

1. People who have Gates-type wealth buy homes in cash, so we won't be helping out the super-wealthy, even if they win the lottery.

2. Most mortgages in small town America are WAY below $200,000, so we could actually cover probably 15 million people when it's all said and done, not just 3.5.

3. The federal government already regulates 30-year mortgages, so we don't need a 60% of gross income requirement. Had we simply NOT offered ARMs, we would likely not be in this mess.


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1 comment:

Incredibledad said...

This is a Great Idea
I feel that instead of having one winer thats wins big jack pot like 48,000,000
48 winner with 1,000,000 Tax free but they would have to make a %10 donations to NPO

like the 300,000,000 Jack pot
thats 300 new millionaires that donate 30 millions to their communities that should help recovery

Incredibledad