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Do Some Real Good With 75 Billion

If the Government is going to spray £75 billion quids' worth of petrol on the embers of the economy, they could at least do it in a way that stands the best chance of achieving something.  Here's an idea.

Offer people the chance to sell a stake of up to 50% or £75k, in their house, whichever is the smaller.  This can only go towards reducing their mortgage, so you have to be a borrower.  The money goes straight to the bank or building society.  This would seriously reduce the burden on your family, both in terms of the total amount you have to repay, and your monthly liabilities.

Now you can spend money, because a big burden has been lifted and you have a lot more monthly disposable income.  You might even be able to borrow a bit to buy a new car, for instance, because you have headroom for repayments and the bank knows you can afford it.  This relieves pressure on businesses, who see money rolling through their accounts once more, and don't have to lay off people.  This restores confidence.

If the average stake costs £50k, this would help 1.5 million people; it might even stem the tide of repossessions.  The Government gets a cast-iron secure asset, because it only took a maximum stake of 50%, and properties probably won't drop another 50%.

The taxpayer gets repaid either when the house is sold, or when the part-homeowner decides to buy out the Government stake, perhaps when the economy has properly recovered.

We even have the mechanism to administer this - Northern Rock, B&B, RBS and Lloyds, all of whom know how to handle the admin burden of registering the Government's part-ownership of the properties - and the other banks could join in (for free) if they are feeling left out.

Of course, the money still ends up with the banks (in the form of mortgage repayments) and therefore is available to lend on, in the same way as the proposed mechanism of buying gilts and corporate bonds does - it's just that the money has been put to good use, at the coal face, first, and made a real difference.  We could probably even afford to raise interest rates again and get interest money back into the pockets of savers to spend, since we would have made a bigger difference to peoples' borrowing burden through QE than it would cost in interest charges.

This might sound like a mad idea, but we've tried lots of other mad things; why not try this one?

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Comments: (3)

A Finextra member
A Finextra member 08 March, 2009, 00:54Be the first to give this comment the thumbs up 0 likes

Roger

Personally I think this type of approach has legs. Its not mad at all. It makes a lot of practical sense.

I have a similar comment over on Colins blog at The Bankwatch. Colin also introduces Niall Fergusons ‘jubilee’ concept whereby debt is forgiven every 50 - 100 years just to sort things out.

I for one would like to know and have a say where my my future taxes will be spent at a time like this, and make sure the money is allocated to what it is supposed to be allocated to.

We do need to restore some confidence in people and their outlook, and start the rebuild from the bottom up, getting to the current root cause while your at it, and where it matters most, by reducing the risk of foreclosure

 

http://thebankwatch.com/2009/03/04/bank-nationalisation-must-follow-failure-to-meet-stress-test-for-solvency/

A Finextra member
A Finextra member 08 March, 2009, 22:22Be the first to give this comment the thumbs up 0 likes

Roger

 

i think this is another way of saying our approaches

“If the debtor is in difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew”

(Qur’an 2:280)

John Dring
John Dring - Intel Network Services - Swindon 09 March, 2009, 10:09Be the first to give this comment the thumbs up 0 likes

I love it.  Its a bit like splitting the mortgate with a second (state) lender who charges no interest.  You'd have to enforce to waive any mortgage redemption(payment) penalties by the existing lender, but that's a good thing too.

I heard a great explanation of the current (save or spend) dilemma on BBC Radio yesterday:  the logic for individuals right now is to be frugal and save, but the greater good (globally) is served by people all spending.  There used to be a post (2nd) wartime saying 'save 12 shillings and you put a man out of work'.

I'm doing my bit and spending!

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