Thursday, October 2, 2008

Love this man...

I've recently started listening to Dave Ramsey. This is no small feat since he isn't on the radio in my town. So I've resorted to podcasts. I just love this man. (ok, so maybe what I love the most is his adorable Tennessee accent) He's a pure capitalist and he's all about being debt free. In times like these...who can argue with that?

If you go to his website you'll find lots of great articles and what I think are great ideas regarding the current situation with our economy. I know, I know, I said no more politics. But this isn't really politics. It's a solution. No more blame game...let's just get this thing fixed!!! From his website...

The Common Sense Fix

Years of bad decisions and stupid mistakes have created an economic nightmare in this country,
but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support
any congressperson who votes to implement such a policy. Instead, I submit the following threestep
Common Sense Plan.
I. INSURANCE
a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance.
Government-insured and backed loans would have an instant market all over the
world, creating immediate and needed liquidity.
b. In order for a company to accept the government-backed insurance, they must do two
things:
1. Rewrite any mortgage that is more than three months delinquent to a
6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the
balance. This brings homeowners current and allows them a
chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or
the sale of the property to pay off the bad loan. In the event of
foreclosure or short sale, the borrower will not be held liable
for any deficit balance. FHA does this now, and that
encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and
ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and
executive team members as long as the company holds these
government-insured bonds/mortgages. This keeps underperforming
executives from being paid when they don’t do their jobs.
c. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
a. Remove mark to market accounting rules for two years on only subprime Tier III
bonds/mortgages. This keeps companies from being forced to artificially mark down
bonds/mortgages below the value of the underlying mortgages and real estate.
b. This move creates patience in the market and has an immediate stabilizing effect on
failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
a. Remove the capital gains tax completely. Investors will flood the real estate and stock
market in search of tax-free profits, creating tremendous—and immediate—liquidity in
the markets. Again, this costs the taxpayer nothing.
b. This move will be seen as a lightning rod politically because many will say it is helping
the rich. The truth is the rich will benefit, but it will be their money that stimulates the
economy. This will enable all Americans to have more stable jobs and retirement
investments that go up instead of down.
This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.

Genius.

And I'll definitely be buying this for my kids...



as well as
this...

12 comments:

The Rauths said...

if only those people in washington would think bigger and more logical, listen better to their supporters and spend more than one week on an issue this large.

he has very solid points.

JillyBean said...

I've been a Ramsey fan for a couple of years too and LOVE him. Thanks to him my hubby and I are almost out of debt. I love his tactic of tackling the smallest debt first then rolling that into the next and then the next. It's so much easier to stay motivated even if that small debt is a couple hundred dollars.

We don't get him either but I listen to him on XM Radio. LOVE HIM and especially now.

The Cleary's said...

I really love Dave Ramsey too. He is the voice of common (financial)sense in this economic mess...If you like him he's on Fox Business News all the time too!

Well I Do Declare said...

Dave Ramsey is great! What great gifts his kids stuff would make along with some actual money (probably not as high on the list as toys, but I bet Alex P. Keaton would have liked it)!

Caroline said...

I love your blog and have been lurking for some time. I wanted to comment on a few points. I'm a CPA, and I've been following this mess as much as I can and still stay somewhat on top of my Oct 15 tax deadline.

I so agree with you about living within your means. The financial illiteracy and stupidity in this country is frightening. The ARM and option ARM mortgages both have their place and are appropriate for some people. However, a lot of people took them without bothering to educate themselves, and a lot of people felt entitled to live in a larger home than they could afford.

All of the subprime mortgages were insured through PMI; however the insurance companies are bankrupt now, and the government does not have the means to insure all of them. If I remember correctly, there were 2.2 trillion of these mortgages originated between 2002 and 2007.

I completely agree with cancelling the golden parachutes for the executives who are driving companies into the ground. It sickens me that the CEO of Merrill Lynch was one of the highest paid executives last year (I think he made $83.1 million). They should not be allowed to earn a salary of more than 12x the lowest paid employee. Further, all bonuses should be in company stock that is not redeemable for 10 years.

Regarding mark to market, this is not a significant issue, if a company merely reclassifies its investments to "Assets held to maturity", there is no accounting requirement to be write investments down/up to market value. This is such a simple reclassification, and it can be changed at any time. There are other loopholes in the rule - most funds are now taking advantage of this one. (Any company complaining about this is merely making excuses.)

Regarding the capital gains tax, I'm not sure this would help. It's already the lowest tax on the books - regardless of your income. The biggest issue we see with our clients is there is currently no credit available. Several of our large developer clients had projects slated to start - one client was building an office building that was already 100% leased, and their financing was cancelled. This was virtually a "no risk" loan for the bank. This client would happily pay the tax if they could get financing for the project.

Banks are currently so overleveraged, there is no money to lend. I don't think any banks will be able to take advantage of the stimulus. It requires them to sell their "junk assets" to the government at a discount. Their balance sheets are so maxed - if they sell their "junk assets", the losses incurred would make them instantly insolvent.

I would like to see the government use this money to make loans - like the one I mentioned earlier. Or, buy interests in some of these projects. It will allow companies to expand again and make a return for the taxpayers. I read a great article about how we should watch Warren Buffet. He isn't buying "junk assets"; he's buying preferred shares with very generous dividend structures. He's going to make billions from this.

I hope the ones who have made reponsible choices are able to emrege from this with their savings intact.

Anonymous said...

i love dave ramsey too! more people should listen to him. i think he should be in charge of our finances...he's that good. i love how honest he is

Helen said...

I wanted to drop you an email, but cannot find our address! Mine is kappaprep@gmail.com

PS- I just want you to say my email is going to be nice as we are on the exact same page!

Jennifer Foster said...

I love Dave Ramsey too! I am a FPU graduate...and his course changed my life for the better! It is wonderful to see others out there learning from him as well! Yes, in this economy (and really, all the time) we all need to listen to Dave!

Anonymous said...

I LOVE Dave Ramsey. We will be debt free on Halloween! I can't wait to make the debt free call.

Heidi said...

We're Dave Ramsey fans as well. I actually wasn't able to access his website yesterday to get his take on the bailout, most likely b/c lots of people were interested in his opinion. We don't get his radio show here, either. :( Thanks for the links to FP Jr. - those'll make great Christmas gifts for the kids.

Just Ask Beth said...

As a Loan Officer for a mortgage Company, I couldn't agree more. I am sick and tired of working my tail off and for what, to provide a comfortable life for me and my family, NOT to give it away.. Dave Ramsey is DA BOMB

Amy said...

I have been a Dave Ramsey fan since I first left college for my real job. Not so say I always listened to him :-), but I knew where to turn to get back on track! He rocks!