Dakota Beacon

I know it is Saturday and I had planned to write something light to help us all pass the time in this unfortunate situation.  But I was just reading about the government’s plan to help people who have lost a job due to the virus and have a mortgage payment to make.   The intention is good, but the means of reaching it is no good. It takes us in the direction of a welfare nanny state and will not help our economy at all.  I have a better idea. I have written about it in a more limited way but I think it is time to repeat it and expand on its explanation.  

I do not see a benefit in any kind of “bail-out”.  We can’t afford it and it usually helps those who have been irresponsible, rather than those who are usually constructive.  Instead of a bail-out or a plan to hold off on collection of mortgage payments for a select few, here is my plan for a successful economic recovery:

The following is appropriate because our problem is an acute, but short-term interruption.  If we act on the following it won’t become a long-term burden or drag on our economy but actually stimulate it to recover.  However, in that acute, short-term period, there is the potential for tens of millions of Americans to lose everything overnight.  This plan would stop most and maybe all of that loss.

1.  A 12-month (with possible review and extension if necessary) loan payment holiday.  This would cover not only home mortgages or owner-occupied primary residences but all existing loans - income property loans, car loans, boat or RV loans, business loans, etc. They must be existing so that unfair advantage cannot be taken by a borrower, but other new loans could be made under normal conditions and terms which would be paid in the normal way.  This would help to keep businesses expanding when we need jobs.

2. There will be no added interest, no late fees and no impact on a consumer’s credit.  No lump sum payments will be required - just resumption of normal payments.

3. On the 13th month payments will resume as though the entire year never existed.  Loans would be paid out exactly one year after their normal pay-out date.

4. If a borrower were in a position to make his payments on time as scheduled he would be free to choose to do so, and thus keep his loan on its original schedule for pay-out.

5. The lenders would be protected in the short term by a federal loan which would cover the amounts of payments anticipated for the next 12 months - whether they are monthly payments or other periodic payments which fall within these next 12 months. There would be no interest on this government loan.  On the 13th month, the lender would begin to pay back the government loan as they receive payments. In 12 months this government loan would be fully repaid, no interest having been charged. The lender would be in the same financial position as though there had been no shut-down.

6. Apply all of the above policy to credit card and store card debt as well as lease agreements.  

The benefits of this plan would be:

1. Homeowners would be able to stay in their homes.

2. Families would be impacted far less by not having a home foreclosed and much stress on families and individuals would be relieved.

3. Renters would benefit because landlords would be able to reduce their rental payments or just “carry” them for 12 months while businesses recover.  Many of those who have lost work are renters, not homeowners. (In my city renters are a much larger percentage of residents than homeowners.) They are also likely to be the ones most impacted by the business shut-down - wait staff in restaurants, service providers of all kinds, etc., entry-level workers (“last hired, first fired”).  So the same factors which would relieve the problems of homeowners would be relieved for renters.  No responsible investor wants to lose a good tenant or see his property decline in value because he can't maintain it.  

4. Both landlords and owner-occupants would be able to maintain their properties in the interim - which would help tradesmen with finding work as much construction season work will not be available this summer - roofers, carpenters, plumbers, electricians and other trades would have at least some work to help them and properties would not deteriorate.  We can look at the impact of neglect in places like Detroit to see that no one wins when properties can no longer be maintained.

5. All of the above will help alleviate further homelessness.

6. People with other loans will have relief - people struggling to make their car payments would have relief and dealers will not have to repossess them.  Public transportation is not a good option right now so it is best that people can keep the cars they qualified to buy before the shut-down. Same with other consumer loans - having massive repossession is going to create serious problems for people and lots of ill will all around.

7. Business loans, if helped in this way, will enable many businesses to stay open and continue to employ people after the shut-down of businesses ends.  This is key! People need jobs to go back to and people need confidence now more than ever. Allowing businesses to defer their loan payments while they rebuild is essential to avoid a major economic depression.  

8. By assuring that lenders have money in their funds to make new loans (new loans would not come under the deferment plan, but would operate like any other normal loan).  This means that a business that was about to expand or start up could still do so just as before. This would also help keep people working. Loans are the life blood of the lending industry and if people’s credit is destroyed and their means of recovery precluded lenders will also suffer in long term.

9. All of this would keep government involvement to a minimum - government would be only a facilitator, not a provider of this assistance.  We simply cannot keep adding trillions of dollars to our national debt. We don’t have to in this instance - the market place can do it under its own great power.  We won’t be left with a hulking government structure that was implemented for a short term problem but is still with us 50 or 100 years from now.

10. There is one more critical benefit to this, and that is that if people feel secure that they will not lose their homes and businesses and destroy their credit, they will be far more likely to cooperate with quarantine requests.  It would be good if we can avoid martial law, and by allowing people to stay home and not lose everything we might contain this virus much more quickly and effectively.

All of the above would have a net-zero impact on the lender, the borrower and the government.  It would not require adding offices, departments, agencies or bureaucrats to the national tax load and it is all short-term.  It would all sunset in 12 months, unless it were extended due to the course of the virus, which we would know in 12 months’ time.  In that case, that extension, too, would sunset at a specific date.  

The plan outlined here would not favor one segment of the population over another, it would protect homeowners, renters, businesses alike.  It would mean far less need for people to move in the middle of a pandemic. It would leave America back on its feet as a capitalist, free enterprise economy, ready to rev up and move forward as though this had never happened.  It is unlike any other program I have heard discussed. It is simpler, involves less paperwork and manipulation of people and business. It is a totally American approach to solving a serious problem which has been thrust upon us.  Other kinds of economies cannot do this. We can.  

The ideas we have heard so far leave many important, large groups of people and legitimate interests out in the cold to die on the vine - renters, retailers of major appliances, cars, etc.,  businesses which have taken a massive hit with this, retired people on social security who have supplemented their incomes through self-employment such as crafts, teaching, tutoring, as musicians, artists and in other creative endeavors, etc.  They have not “lost a job due to the coronavirus” but it has impacted their income just the same and perhaps even to a greater degree - they can’t just get unemployment compensation if they are laid off.  My idea covers them as well and to the greatest extent possible.  

It also does not provide a windfall profit for anyone because of the crisis.  That is an important feature. We need to come together as a nation, not splinter into interest groups or have the government pick and choose winners and losers in the midst  of a crisis.  

It also avoids a “dependency”mindset.  It expects people to go on with their productive lives with the ability and expectation to succeed as before.  This is essential if we are to avoid the trap of socialism.  

If we do this we can discourage a lot of anti-social outcomes - lessen crime because we won’t have abandoned homes or desperate people whose lives have been up-ended, avoid suicidal thoughts and severe depression, teach our kids that we pick up and keep going, we don’t give up.  It is in effect an investment in our future and a tacit statement of confidence in that future.  

Anyone who wants to promote the America way of life will want to take this road, not the other, unimaginative, knee-jerk, “send ‘em a check” kind of “help”.  Americans don’t want “help” - they want a chance to do what they can do.  

A lot of mortgagees will call their lender and try to set up an individual plan to save their homes. They will think they have an arrangement.  Then in a few months when they send in their payment as agreed they will get it returned to them - they will learn that their house is in foreclosure.  It won’t matter what they thought they had arranged. “Brent” or “Phil” or “Sarah”, whom they talked to and arranged things with, suddenly won’t be there anymore.  Too bad. The terms of the loan you signed stipulate that foreclosure will commence if you miss three consecutive payments. So sorry. I know. It happened to people after the 500-year flood in Grand Forks ND.  Let’s not let this happen. It will literally tear America apart if we have massive and lopsided losses due to this. A pandemic is serious enough. Everyone will lose something or someone to this. If it looks as though there are “winners” and “losers” we will all lose.

If you know someone who can convey this plan to someone with the power to get it done, please do so.  Time is of the essence. Losses will begin mounting very soon and they will be overwhelming and impossible to surmount after the shut-down ends.  It could go on for weeks or months or it could return in a second wave. Either scenario would be long enough for millions of Americans - tens of millions - to lose their lifetime investments, their homes and their futures.  

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