Interest-ing
The daily news is full of commentary and observations about the current financial crisis. Today’s hot button is the proposal to give new (first time?) homebuyers a break by offering them loans at 4.5% interest. That’s not a bad place to start, but it doesn’t go far enough IMHO. The problem is that it doesn’t really solve the real problem, which is that with $10.5 Trillion in mortgage debt, assuming 4.5 percent interest and a term of 30 years the interest alone totals 30 trillion dollars. That’s got to come from somewhere and the where is *you* working for the next 30 years to pay off the principle and twice that in interest.
It amazes me to hear people talk about “the government” giving money to business to help them survive. Where do people think that money is coming from when the National Debt is already 10.6 Trillion dollars? It’s another loan ie; more debt. A more effective solution would be to cut interest rates to zero and let *everyone* refinance for a limited time, say, 7 years. That way we all don’t end up paying three times more for our houses than they are actually worth. Once you’ve done that, the payments can be reduced to a reasonable level. The result; *everyone* gets out of debt sooner. This would dramatically change banks’ business model for a while, but it lets everyone openly share the burden - which we’re all going to have to do anyway. It beats the alternative; bankruptsy.