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September 23, 2008

Dave Ramsey's take on the bailout

Treasury Secretary Henry Paulson received a skeptical reception today when he appeared before senators, asking to grant him authority to rescue the country's financial system, The New York Times writes. The administration has proposed a $700 billion plan to buy up and hopefully resell troubled mortgage-backed securities.

Christian financial adviser Dave Ramsey is against the bailout. Feel free to post more evangelicals' reaction in the comments section below.

varveleconomy.jpg
Cartoon by Gary Varvel, Indianapolis Star

Comments

I've linked to this post from Jeremiah Films: Who is going to bail out the US, $9,674,553,948,154, National Debt? Most people I've talked to in church don't have many words just a head shake.

Now here's a bail out plan that works!

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in "We Deserve It Dividend".

To make the math simple, let's assume there are 200,000,000
bonafide U.S. Citizens 18+.

Our population is about 301,000,000 ± counting every man, woman
and child. So 200,000,000 might b e a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a
"We Deserve It Dividend".

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent's medical insurance - health care improves

Remember this is for every adult U S Citizen 18+ including the folks
who lost their jobs at Lehman Brothers and every other company
that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out
a puny $1000.00 ( "vote buy" ) economic incentive that is being proposed
by one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!

As for AIG - liquidate it.

Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can "never work."

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion
"We Deserve It Dividend" more than I do the geniuses at AIG or in
Washington DC.

And remember, this plan only really costs $59.5 Billion because
$25.5 Billion is returned instantly in taxes to Uncle Sam.

Dave Ramsey interviewed Brian Wesbury last night on Fox. Brian Wesbury is Chief Economist at First Trust Advisors L.P., a financial services firm based in Lisle, Illinois and serves on the
Board of Advisors to First Trust Capital Partners, an affiliated
private-equity firm. The Wall Street Journal ranked Mr.Wesbury
the nation’s #1 U.S. economic forecaster in 2001 and USA Today
ranked him as one of the nation’s top 10 forecasters in 2004.

Here is a very simple plan for the bail out that would probably come in at around 5% of the current lowball cost estimates and would not pull you, the american people, into the mortgage business against your will.

Simply put, "Temporarily suspend mark to market accouting for the illiquid assets on bank books. The Government could provide some insurance to them at a fraction of the cost of the 700 billion bailout." This would fix at least 60% of the problem at a cost of around 35-40 billion.


WOW!! What a truly practical plan. DAVE RAMSEY FOR PRESIDENT!!!

The whole posting about giving the 85 billion to the 200 million adult Americans contained a grevious math error. Ten dollar each would be cost 2 billion. $100 each would cost 20 billion. One grand each would cost 200 billion. So the 85 billion would actually come to about $425 for each of us, not $425,000 for each of us, so forget all the thoughts on that posting.

hahahaha burned.

I think Wayne was doing "Obama math"

Typical Republican math--we actually only get $425 each, not $425,000. Nice try, though.

I am a reluctant supporter of the plan, but don't think it is by itself going to solve the problem. Here is my plan www.savetheeconomy.us

I agree with your plan and your numbers here is a letter I wrote to Congress.

Why can't Congress and the President think in way to help boost the economy by giving each American Citizen who is head of household One Million dollars according to each tax payer household income requirement. Having the Government pay off each families household debt would help the economy and the American people not feel so burden down with losing their homes, cars and retirement money. American Citizens can be debt free plus save and spend money on new businesses (which will generate new jobs), buy properties (which will help boost real-estate investments), shopping and spending for necessities and on entertainment would help boost and rotate money back into the economy such as buying clothes, cars, going on vacations, gas (for cars), and dinner outings with family and friends.

Moms who want to start new businesses from home can become entrepreneurs and stay at home Moms, that way they can become more active in their communities and children's school activities without the strain of financial debt hanging in over their heads and working two to three jobs at a time trying to make ends meet. Education would be at a all time high, it would not be a strain on the family income to send our children to college or even older adults who want to start or finish their education. In that the economy would boost in a very big way, even the stock markets would go back up because of the spending and the investing; plus because most Americans like to have a nest egg set aside for emergencies, banks would prosper greatly with the opening of new savings accounts, orange accounts, CD accounts, portfolios for bonds and market shares, and retirement savings account. Wow and the list can go on and on!

In America alone we have around 300 Million people that live here and the price of taxpayer dollars being spent would be less than $700 billion then that of which the Bush Administration is trying to make us taxpayers repay back for many, many years to come (heck we would be old and dead still trying to repay a $700 Billion dollar debt). Taxpayers such as myself and you would not have to face the responsibility of paying back $700 Billion dollars of debt, but a much lesser amount and still benefit from our own tax dollars to stimulate the economy again. Many of the different welfare programs would be cut back drastically, and other financial programs that the tax payers are paying for will be to no avail and only used to help the homeless and child support court cases instead.

Please Congress get a committee together and bring my economic story to some consideration and brainstorm over the statistics, income requirements, and develop a debt sheet for each household to complete by a certain deadline. Congress can put together a already existing debt consolidating company that can be responsible for paying off each household debt and issue the balance into the tax payers bank account. Create some sort of information package detailing how to investment in money market accounts and certain financial institutions to help aid the tax payers on how to help boost the economy. These ideas can be surplus for our economy, Congress may have some better idea's to add or iron out to this plan, but this plan can really work if you Congress and your economic people put your heads together to see this through and work out the kinks for us American Citizens. Please don't allow us tax payers to not benefit from our own money.

I love the above posts, really I do. I am not suggesting support either for or against the bailout proposal, but I just have a couple of practical considerations. If we were all made millionaires overnight, as suggested in one of the proposals above, who would be serving food at the restaurants we would all then be eating in to boost the economy? Who would be picking up trash? Who would be selling cars? Who would do the really important jobs that are currently being performed by the middle/lower class Americans? Nobody...that's who!

Now what the heck are we going to do, once we have MILLIONS of people that now refuse to work and TONS of jobs that we can't even pay anyone to do? Just a thought.

If these people had followed Dave's principles on how to handle debt then we would not be in this mess !!

wayne,

that sounds awesome. that would totally work if your math was correct!

but its not.

we would all 425 dollars. not 425 THOUSAND dollars. big difference.

I believe the mathematician's name is jeff weir not wayne :)

seems like everyone is confusing billions with trillions, collette willliamson too

This is a wonderful thought… however let me explain some of the issues with Mr. Westbury idea.

First, in the case of Enron, WorldCom, Global Crossing, and Adelphia... these companies’ loans primarily were not secured by real property. Their loans were accounts receivable loans, equipment loans, business development, unsecured revolving lines of credit, R&D, M&A loans, etc. When they bought the products or services there was a separate market value for those products… how is it different for the “Sub-Prime” crisis… the loans that the banks are holding have value but there are no buyers so no one knows what the value of those assets are, and at this point Jumbo loans, loans that are more than the limit that Fannie Mae and Freddie Mac will purchase, are being lumped in to the “sub-prime” label in the secondary mortgage market.

Let me give you an example… lets say I have a solid gold Rolex watch for sale… I would like to sale it now and I paid $1000 for it… I want to sell it for $975, well someone says “how do I know that it is a real Rolex”, and “someone else says that I had a Rolex and it stop working”, well the people around me now are “skeptical” that my Rolex is a good Rolex and now I have to lower the value based on the “mark to market” theory, even though at this point I don’t want to sell it.

Now with the real estate market, 94% of the people are paying their mortgages on time, but everyone has termed all mortgages “Sub-Prime”, "Toxic" or "Bad Loans", like the people being skeptical of the Rolex in the example above.

Second, the elimination of the “mark to market” rule is a necessity, however this is not going to “free the market up.” This is a crisis of confidence… because of the mark to market rule nobody knows what everyone else has in their loan portfolios, “good loans or bad loans”… so investors are not buying mortgages from the banks… like the people in the example above, people are not going to change their minds unless someone steps in and changes the mentality… and says “oh yeah, my Dad is a watch maker, and that is a real Rolex and he said that it is worth at least $700”. At this point there is a new floor market price for the asset. This is what the $700,000,000,000 “Wall Street Bail Out” plan will do… set a floor price for the asset. I like using all of the zeros, because it makes it more dramatic…

Third, the idea of the government “insuring” mortgages so they will be sold on the secondary market is going to cost ME and all of the American taxpayers less than this $700,000,000,000 “Wall Street Bail Out” will is absurd.

Let me explain, how this works… if the government decides to insure these loan when one of them goes bad, we will have to pay… and if the government decides to have the insurance reinsured then we will have to pay for that as well… This will cost us money with no opportunity for a return… unless the government is smart and makes the financial institutions pay the cost of the insurance, and the reinsurance… but guess what, the financial institutions will then charge us, the American taxpayer, higher fees and higher rates to get a mortgage in the future.

Now, I agree that the housing boom got so far out of hand that it was really ridiculous at the end… but lets really think about this option… first because of the higher rates and higher fees, many people will not qualify for mortgages… then those people will not need the new sheet for their new beds, or the new curtains for the windows… so profits at the textile companies will go down, and someone will loose their job because the textile company can not afford to keep them employed because the company is not selling enough sheets and curtains… now that is a simple scenario, but that is basically how it works.

So see how this $700,000,000,000 “Wall Street Bail Out” helps “Main Street”…

Now, let me give you a better case scenario… today the 30 year Treasury bill was at 4.15%… Let’s say that the Treasury issues $300,000,000,000. Now, the government goes out and buys a group of mortgages, on a single loan basis, from some financial institutions… they pay fifty cents on the dollar for the loans (setting a floor price for the asset)… so now they have $600,000,000,000 in loans… they take these “bad loans” and modify them to make the payment affordable for the homeowner… don’t reduce the loan amount unless absolutely necessary… just extend the term to 50 years or lower the rate to 4.5% fixed, this would cover the rate payable on the Treasury bill and give a little spread to cover servicing costs. So now you have $600,000,000,000 in assets, BUT WAIT it gets better… when the borrowers pay their mortgages, that the government modifies so they can afford the payment, the interest is income, over and above just the value of the mortgage balances… it is called a “hold to maturity” value… the principal balance with interest due to matutity... WOW! You mean that we, the American Taxpayers, could actually make money on this $700,000,000,000 “Wall Street Bail Out” plan.

The main reason that we SHOULD do this “Bail Out” is that the brilliant Wall Street bankers have shown that they make very bad decisions quite frequently… again I point to Enron, WorldCom, Global Crossings, the whole tech boom, Wachovia's purchase of Golden West, and believing that a sub-prime loan is almost as good as a US Treasury … and now is the time that we, the American Taxpayer, have the opportunity to actually make some money from these companies.

$425 for every U.S. adult can still generate a LOT of commerce in the economy, and it would be spent more wisely, by and large. If we did the same to the recently defeated $700 Billion bailout, that would mean $3,500 for each of the appoximately 200 million adults in the U.S. to spend or invest and so help the economy. Either way, Uncle Sam gets his portion back in the form of taxes on the $425 or the $3,500, so the Fed's 'cost' is offset somewhat.

Wayne,
I think your calculator is broken.

$85,000,000,000 divided by 20,000,000 is only $4,250. You could do this in your head if you wanted. Just drop the same number of 0's from both the 85 billion and the 20 million and divide. You'd have $8500 divided by 2.

I would like to E-mail The Dave Ramsey "Bail Out Proposal" to my
Congressman -How? I live in W. Massachusettes

HOW DO I GET THIS OFF TO MY GOVERNMENT REPRESENTATIVES? YOU GO, DAVE!!!

Wayne must know by now that his math is jacked up...
85,000,000,000 / 200,000,000 = $425 -- not $425,000

of all the comments listed above, i like the one by jim paris the most by far. i am a life long conservative, but i tell you this. if anyone would put $1,000,000 in my pocket i'd vote for them no matter what party affiliation or religous fath they were in. this whole financial crisis we are in only point to one thing. miss management by those that are trusted to be experts in financial matters.and something i dont understand. if we are in such a financial crisis, how then can people turn around and claim that we are the wealthiest nation in the world? that;s and oxy moron.

Dear God

H E L P !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! For they know not what they have done. Hussein Obama is allowing baby’s to be killed. He has plans of spending the largest sum of Americans money faster than any other president in just a few weeks in office. When are you coming home. That’s what I’m thinken.

The Republican Controlled Georgia Legislature has just cut the taxes on $250,000 Mercedes and Lexuses by raising the taxes on 20 year old cars with 200,000 miles on them. The new Christians steal from the poor, so they can give hand outs for the rich: the age of Reagan and George W. Bush is truly the age of the vicious Christians.

It is a few years later but the bailout just delayed the pain. We still have high unemployment and there are signs of trouble. We will see.

nice post. thanks.