Come on Congress...

Let's all keep our fingers crossed that our congressional leaders can come together and get a bill passed that will provide the support our economy needs to be able to work its way out of the current pattern of poor performance. In fact, the deal that the President has put on the table presents a great opportunity for our government to potentially make money on the initial $700 billion dollars of taxpayer money it will invest in our economy. Profits could be used to pay down the deficit, help salvage social security for future generations (even my Gen-X generation), or reduce taxes for all Americans. If the investment does what it is supposed to do, the government should at a minimum make back the initial investment. What has to transpire to make a profit on the deal is that the anticipated number of Americans defaulting on their mortgages would need to decrease. This will come to pass with companies working with (or even being forced by the government to work with) homeowners on the brink of losing their homes in restructuring their loans. Americans are hard working and innovative folks. Nobody buys a home with the hope of losing it, although when it comes to purchasing more home than you can afford, I do not place all of the blame on the banker or mortgage industry folks. Shouldn't some of this responsibility fall at the feet of the people who signed the loans in the first place? Maybe it is my conservative Midwest upbringing, but isn't it prudent to always try to live a little bit below your means? I understand that circumstances change, and I am deeply empathetic to anyone losing their home (especially the home that they live in), but I do believe that people who extended their finances and bought second and third homes with hope of flipping these properties for profits should have to deal with the consequences of their investment strategy. Okay, I'll get off of my soap box.

What I find interesting about the $700 billion economic rescue plan is that (according to President Bush) it will lower the threshold at which people can borrow money. This should immediately help families to be able to refinance at lower rates, spread their mortgage out over a longer period of time, lower their payments, reduce the number of foreclosures, allow for small business growth, etc. But, a lot of this is going to be dependent on the lending institutions’ willingness to lower or eliminate the refinancing charges (that can quickly add up to be more than $10,000) or the confidence the institution has in a small operation’s business plan. Let's hope this becomes reality once the final bill gets passed by Congress. Another "but" is that lower thresholds on borrowing is one of the major contributing factors to getting the economy in the mess it is in today. I am not sure that recreating the environment that led to this current economic state of "crises" is the right way to fix our economy long term. Hopefully, lending rates will drop and lending institutions will learn from the past and not make risky loans. What I do know is that Warren Buffet has (according to his recent appearance and interview on Squak Box) the utmost confidence in Treasury Secretary Henry Paulson to make the right decisions to get our economy back on track. He even put his company's money on the line with a huge investment (around $5 billion) in Goldman Sachs due to his confidence not only in Goldman, but Paulson and Congress's ability to get a deal done on the so-called "rescue package."

Let's keep our fingers crossed that this is the shot of adrenaline that our economy needs and we can get back on track for growth across all sectors and industries. It should be increasingly apparent to our elected officials in Washington that they need to get a deal done upon the release of the current week's jobless claims, the highest in seven years. If I could make a recommendation to Congress, it would be that while they are finalizing and passing into law the current bill, they should have a committee working with the best financial minds in the US working on a contingency should we need one.

What is your opinion on the $700 billion economic "rescue plan?"