Why the financial savior plans won't work!

In reading about the current crop of “savior” plans for the US financial crises I realized why they won’t really solve the problem.

They are all top down plans and the problem is a bottom up problem. What the government is trying to do is like fixing the fuel pump on your car when the battery goes dead.

Take the mortgage melt down as one example. Bailing out the lenders with direct cash subsidies doesn’t do a thing to stop foreclosures, it only makes it possible for the lender to pay it’s bills and make new loans. A better use for the money is to subsidize the home owner who can’t pay the mortgage directly and let them keep paying on time.

The mortgage crisis is only a crisis if the people who have loans can’t pay them. A lot of the problem surfaced when ARMs (adjustable rate mortgage) reset and drove the monthly payments up. The rest of the problem is people who lost their jobs and can’t find another, or at least one that pays what the lost job paid.

At the core of our financial problems is the fact that peoples income has not kept pace with costs and the cure is to put money back in the hands of the people in trouble. Take the same 700 million dollars, pay it to the same banks, but pay it as assistance to individuals who need help keeping their homes and businesses. Take the interest rates back to where they were when people were making their payments, pay 10% or 20% of the mortgage and let the home owner pay the rest.

The next big example is US auto makers, who don’t need large influxes of cash, they need a large influx of customers. The best way to subsidize Detroit is to subsidize buyers. If you going to give GM, Ford, and Chrysler assistance, do it by making it possible for them to sell their product at a price people can afford. Again, lower interest rates or down payments using the same money you were going to give in the form of a subsidy.

When you prime a pump, you don’t pour a huge volume of water down the well, you pour just a little into the pump! The big companies are the well, the consumers are the pump.