Stopping Home Foreclosures And Loan Failures

2578 words - 10 pages

There are two dichotomous problems facing the American economy today. First, how do we stop home foreclosures and, ultimately, loan failures in the country as a whole? Second, how do we encourage the flow of money from the banking industry to the public in order to enable free and aggressive economic growth through spending? It is clear the American economy has grown faster than the individual citizens can pay for. Without the utilization of consumer and industrial credit, continued economic growth will be, at best, slowed and, at worst, entirely stymied. It is not enough to stop the foreclosures alone. If the only goal is to end foreclosures, that can be done with a simple stroke of the pen, and that would almost certainly plunge the world economy into a free fall the likes of which we have never seen.
The question is: how do you simultaneously enable families to afford the loans they currently have, and to increase their debt holding capacity? Additionally, we must make it possible the financial industry to mitigate the risks in the housing market that are currently threatening their existence, but also continue to extend themselves to loan more aggressively than they are now. The answer to this is all about risk management. There are no silver bullets, but there are calculated risks.
As a country we have got to be willing to take risks. America is founded on the concept of risk. Every major venture from the founding of the colonies, to the Homestead Act has been massive exploitation of risk management. However, as we have found, the body public is not extremely good at taking calculated risks. Too little risk destroys progress and too much risk ruins everything. It is only through well developed calculated risk management that we will move out of this economic quagmire.
We must break down the problem and manage the situation. The current foreclosure crisis is founded on three major pillars. First, citizens are over-extended and cannot afford the loans they have. Second, banks are over-extended and cannot afford to sit on loans that are not being paid off. Finally, due to the lack of money flow caused by the first two pillars, we have come to the a Catch 22. The third pillar on which this crisis is founded is that industry is not spending money. Because industry is not spending money, it is losing money, and therefore, people are losing jobs. As people lose jobs, America loses spending power and the cycle repeats itself until someone intervenes. It is this third pillar that makes the solution to this problem non-trivial.
Money is debt. As money is created, the total American debt increases, and the total American spending power increases. As the total American spending power increases, the potential for profit increases. However, this is not without a catch. As money is exchanged so is debt and if money is not exchanged debt builds. As debt builds, the financial backers of that debt will eventually call it in,...

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