3 non-borrowing ideas
One of the major criticisms of the TARP solution is that the Treasury will need to borrow money in order to purchase the toxic securities clogging up our financial institutions. A second criticism is that it does nothing to address the core issue, which is that demand for homes is in steady decline, causing home prices to fall, causing mortgage backed securities (MBS) to be avoided by investors. Below, we have identified three solutions to the current crisis that require no borrowing and immediately add capital/liquidity to the system.
1. Increase the H-1B visa limit. This visa permits U.S. employers to employ foreign workers in specialty occupations. We currently limit it to 65,000, which is reached almost immediately each year. This limit should be raised immediately to 500,000. This would instantly permit hundreds of thousands of highly skilled workers and jobs back into the U.S which have been deported over the past several years. These workers are likely to purchase homes, pay taxes, and benefit our country.
2. Suspend FASB 157. This relatively new accounting rule is at the core of the bank’s capital problem. Commonly referred to as “mark to market”, it requires companies to recognize assets on their balance sheet at current market prices. This works great when markets are functioning. However, in illiquid markets, it forces banks to price assets at distressed prices. Since we are operating in an illiquid, dysfunctional market environment, this rule should be suspended for up to 24 months so that banks can recapitalize their balance sheets pricing their MBS assets at higher prices.
3. 10% tax deduction on new home purchases. All homebuyers purchasing a home during the next 12 months should receive a 10% income tax deduction on their home purchase. This will boast home purchase demand and alleviate buyer’s concerns about additional price drops. They will essentially be getting a 10% discount on their purchase, by saving that amount on their income taxes.
Filed under: General
Posted on September 27th, 2008 by Bob Brinker