A low cost “2-3-4” assumable step-loan program would have prevented much of what has ailed us and what will be ailing us for decades

Incompetence, unethical behavior, and greed on the part of our government and the financial services industry started the real estate debacle in the first place, and have kept it going.  This is because rather than fixing the housing problem at the root of all of this economic pain, we’ve bailed out every other industry that the housing crisis caused, instead.  The $8,000 tax credit should have been instituted for any buyer purchasing any home; but no, our politicians have sent money to the bankers and the car industry, and placed our unborn grandchildren in economic peril. 

Low cost assumable step-loan programs would have prevented much of what has ailed us and what will be ailing us for decades, had they been the first response on the part of government and policy makers.  They also would have likely prevented all the bail outs.  For example, loans starting at 2%, graduating to 3%, and then remaining fixed at 4% for the life of the loan (not the way Chase means, i.e., doesn’t really mean: “for the life of the loan”; rather, “fixed at 4% for the life of the loan, no kidding – we won’t come back and screw you in two years” loans) would have been a robust configuration to get the housing market moving again. 

The assumable part is a key element.  At the risk of dating myself, I have lived long enough to remember a time when real estate loans were high enough (e.g., 17 to 18 percent) such that the question was not so much about the price of the house; rather, it was did the seller have an assumable loan at a more reasonable rate?  It was about the “paper,” not the price or the property.  The idea is to have a piece of paper that was so attractive that every potential buyer would have lined up out the door to purchase real estate, and even if one buyer later defaulted subsequent purchasers would want to grab the “paper” that was associated with a given home (hence, keeping the home from falling into distress, despite the default).   

A simple loan program as I have sketched out above for real estate financing, had it been put in place early on, could have prevented altogether or at least significantly lessoned the impact of the foreclosure crisis and all that has followed with bail out after bail out, and government spending programs galore.  Stimulating entrepreneurs on main street, always a good idea even without a crisis, would have been another productive step. 

Several economists have told me that I’m pretty close in my guess that such a loan program could have been operated at “break-even,” had the government taken such steps (instead of helping AIG throw more parties and bailing out the likes of Chase with $25 billion in taxpayer’s money).  I hate to say it, but we’re not going to break even on the money we’ve sent to America’s corporate elite.  Same old story, especially in hard times: the rich buy out the poor and get more, while the poor give up what little they have.  As human history might suggest, eventually, in the face of serfdom uprisings start, tyrants are displaced (e.g., killed or banished), and the cycle repeats itself.