How to Prevent a Depression

I am so tired of all the back and forth and over-intellectualizing and man-hours that have been wasted on trying to rescue this and save that. This problem started with, and can only be helped by fixing the problem of home values.

This solution is so simple, its embarrassing to post because it doesn't even fill 20 lines.

START ADJUSTING THE LENGTH OF PEOPLE's MORTGAGES. Take TARP money, and create a lending pool that banks could use to meet their funding cap created by lower monthly payments. The extended term, and greater amount of interest payments over time, creates a synthetic tax cut."

Please note I said length, not value. Please not I said this will help, not cure. But in that context, its the best solution because nothing has gone as far as to even help at this point.

Why would it help?

Confidence: If people can stay in their homes on a 50 year mortgage instead of a 30, they no longer worry about day to day and maybe spend $5 to rent a movie. Confidence matters a lot. In Japan, people saw the writing on the wall and started buying safes.


It's not really a bailout: The homeowner's still pay face for their homes, just over a longer-period. Trust me, they will be thankful, but this won't make em rich. They will be stuck in an upside down home for a very long-time and better make plans to retire at the same home because they aren't going to building much equity on a 50-year.

TARP Lending: TARP is used as a Fed Funds type of vehicle that enables banks to quickly and cheaply meet overnight funding gaps from lower monthly mortgage payments. It's just that simple. The government has nothing at risk in this case. We don't have to worry about a return on TARP money and whether our preferred equity in AIG will pay off. Instead, the government creates some of the highest velocity money in the world every day, and is paid back every day.