As Congress meets to discuss how to squander $700 Billion of the nation’s money in a large government bailout, may I suggest a much less costly free market approach? If I look at my own finances, I have a mortgage on my home. I also have a 401K balance and an IRA balance that both exceed my mortgage balance. The only reason I have a mortgage is that there is a high cost penalty to move money from one place to the other (marginal tax rate plus 10% penalty). The government has “encouraged” me to take on debt.

I’m willing to make a deal with the federal government. If the government is willing to accept a 20% tax rate on a 401K or IRA withdrawal to pay off a mortgage, I’ll help provide liquidity to the mortgage industry. I’m willing to withdraw enough money to pay off my mortgage AND pay the government a 20% tax. I think this helps me, the federal government, and the banking industry. For a typical $100,000 mortgage, the banks would get $100,000 and the government would get $25,000.

I’m sure I’m not the only one willing to make this deal. Currently there is about $6 trillion in 401K and IRA assets. If 20% of these assets are used to pay off mortgages, the mortgage industry gets a quick $960 billion in liquidity and the Federal government gets $240 billion. Rather than exploding the deficit, we would reduce it.

Are there any free market Congressmen and Senators willing to allow free markets to work?

It mat be additive to use a perpetual growth rate and back into the implied exit multiple. This way a user of the model can i) determine the long term going concern cash flow profile of an enterprise (benchmarked against say GDP growth) and ii) rationalize that assumption against an implied multiple.

Dominion might look like a good buy, but their whole business model is based on selling crap homes on crap land to people who don’t know value and probably shouldn’t be buying a home.

And since the banking community management is acting like they are still stuck in a time warp of two years ago, maybe from their point of view, it is.

As the market stands right now, there are probably ten builders in the area selling more houses that are better built and a better value for more profit.

Their bill-pay system is full of holes, they are way too cumbersome, their employees don’t understand their own system and they owe tons of money to contractors, and yeah, Dougie is a certifiable wacko.

Martin Whitman, who is in charge at Third Avenue, gave a speech at Columbia the other week and he said good things about Standard Pacific and MDC. I really don’t have an opinion on most homebuilding stocks either way and me nor Carl have not bought any homebuilding stocks in our fund as of now.

If you want to discuss more email me at schleien@eiscapital.com

Best,
Eric

Didn’t you mean the year 2008 in this sentence:

On January 18, 2007 Angelo Gordon & Co., L.P. a well respected firm along with Silver Point Capital, L.P. decided to take the company over for the bargain price of 65 cents a share which would equate to about a 5.5. million dollar market cap.

I am looking into another homeBuilder, Standard Pacific, ticker SPF, which also is dealing with a possible bankruptcy… do you have any comments on this co and investing in the homebuilders while they are down so much?

Just let me know at johnbougearel@gmail.com

Kind Regards,
John Bougearel

That is a very good article. It clearly depicts the problem that this country is facing.

There is one thing that I would like to add. The founding fathers suggested for a currency backed by gold / silver. But it may not always make sense to be infactuated with gold / silver because of limited reserves in the world. It is ok to use any other metal or anything as long as service is performed and exchanged with dollar. Essentially that is what money is. It is a exchanging tool for a service ( Right away I can think of one exception) performed.

Also I do not think the problem is with Bernake. He is just the face of others (aka private banks) who are greedy and irrational. As long as banks are allowed loan more money than that is deposited, this problem will come in various sizes and shapes.

For things to clear, we all have to face a shock (a recession) and not be obssesed with fiat money and then printing money out of thin air. This way we may have a steady dollar and more than that, a steady economy.

Cheers,
Thiru