General Question

Ron_C's avatar

O.K., I've been waiting for a year or so expecting a Republican jobs plan as promised by the new Tea Party congress. Where is it, or did I just miss the news?

Asked by Ron_C (14298 points ) November 8th, 2011

I have seen political take overs in Wisconsin, Michigan, and Ohio by politicians that promised a new way of doing things. If you follow us jobs will come. What I actually saw was needless attacks on unions, firing or reducing state employees, attacks on the voting system to fight non-existent voter fraud, and Federal votes on recognizing “In God We Trust” as a national motto. What in the hell does any of this have to do with creating jobs.

Federal and State authorities shot down high speed rail, fight infrastructure repairs and improvement, and want to make sure that 40 million+ Americans don’t have access to health care.

O.k. conservatives, where are the jobs?

Observing members: 0 Composing members: 0

72 Answers

marinelife's avatar

Since the Republicans want to win the White House, they do not want the economy to improve. they are gambling that people will blame the current administration for their inaction.

WestRiverrat's avatar

There are several that have passed the house and are waiting for action in the Senate.

jrpowell's avatar

@WestRiverrat :: Care to dig those up? I would like to think I keep up on this stuff and I am drawing a blank.

Qingu's avatar

iirc the House jobs plan entailed gutting the EPA and giving tax breaks to corporations to convince them to bring their profits back from offshore.

Which is a wonderful plan, because the reason businesses aren’t hiring is because they don’t have enough cash. Oh wait…

bkcunningham's avatar

Here are the 22: http://majorityleader.gov/JobsTracker/

Here’s what economists say about the Republican’s jobs strategy:

http://www.speaker.gov/UploadedFiles/Economists-11-8-11.pdf

Qingu's avatar

@bkcunningham, you mean “some economists.”

Most economists are confused as to how giving businesses more money (or decreasing regs, which leads to the same thing) would lead to hiring—since, you know, businesses are currently sitting on record amounts of cash, and not hiring.

And it’s not like these are new plans or new ideas. Being against government regulation has been a standard Republican policy for decades.

You guys wanna take a shot at explaining why and how you think these “jobs plans” will actually create jobs? Because those sure don’t look like jobs plans. They look like anti-regulation plans.

jrpowell's avatar

@WestRiverrat:: You kinda lost me here.

“Written by U.S. Reps John Boehner and Bob Gibbs”

Apple has 82 Billion of cash. That iPhone is still made in China.

Poser's avatar

First, Tea Party is not synonymous with Republican. The movement may have been hijacked by the GOP, but they are not the same thing.

Second, I don’t remember the Tea Party ever saying they were going to create jobs. In fact, most Tea Party sympathizers I know believe that the government should not be in the business of job creation.

GladysMensch's avatar

@Poser You are obviously not from WI. The idiot Ron Johnson ran on a platform of nothing but job creation. It was his only message. “I’m a job creator.”

MrItty's avatar

The Tea Party’s jobs plan is to have business owners stop hiring anyone, so that the job situation just goes from bad to worse, and the American Public blames it on the sitting president. Then once Obama is voted out, resuming hiring, so that they get the credit.

No, I’m not kidding

unused_bagels's avatar

Where in the constitution does it say the government has to create jobs? the only jobs the government can actually create are more beureaucratic jobs. everything else is contracted out to people who already have jobs, thus creating work and paying for it with your tax dollars as they trickle down through the bloated government jobs that appropriate them.

Also, the Tea Party got hijacked early on by NeoCons wanting to appeal to the populists. And Fox News.

laureth's avatar

@unused_bagels – Let’s say, for example, that down the street from a government office, there’s a bar. On Fridays, after work, all the bloated government officials go to the bar to celebrate the end of another week, get some beers, maybe order the king size nachos. The office crowd is so big that the bar’s owner had to add a cook and a couple waitresses on the weekends because of all that money coming in from the government employees. Did government money create that job or not?

How about this one. The government decides to improve infrastructure by updating some bridges in Minnesota, where bridges sometimes go “boom.” They hire a bunch of (not bureaucrats) unemployed construction guys to build the bridges, creating some jobs. Those construction guys now have some money in their pockets, which they spend on baby food, peanut butter, and gasoline. Do the grocery store cashiers and gas attendants who get to keep their jobs in a depressed area count as jobs the government helped create?

It’s like this: demand creates jobs. Customers coming in the door with money they want to spend, that’s what creates jobs. If we take the money out of their pockets, there is no longer demand for nearly as many goods and services, so no jobs. That’s why, when nobody else is spending (not broke would-be customers, not businesses who don’t have enough demand to justify spending), government jobs programs are the “spending of last resort.” And that spending, the one thing that could spark the economy, is being stifled by… well, you know who it’s being stifled by. People who think that the government can’t create jobs.

unused_bagels's avatar

@laureth I agree that demand creates jobs. I believe there’s more demand for things when there’s more money in the pockets of the consumer. You can interpret that any way you like. Some say social programs. Some say free market. Some say occupy wall street.
I’m not here to really push my ideas on how the economy needs to get back on its feet, but “create jobs” seems to be the new “war on terror”, as in, it’s a buzz-phrase candidates love to toss around to make people excited. That’s what I’m getting at.
That being said, you have good points, and I appreciate your case studies. Your last point, however, is something that needs to be a means to an end. Social Security was one such temporary-economy-booster, but look at it now. Government spending, yes, should be a last resort. Let’s take that one step further:
Stop spending money on broken programs.
Do something temporary.
Stop doing it when people actually have jobs. Don’t let people start to depend on it. It will sag.
Repeat as necessary.

bkcunningham's avatar

Where does the money come from to pay the government employees and to pay workers for the bridge project, @laureth? Taxpayers. You are taking the money out of our pockets in your scenerio.

Of course we need a certain number of government workers for the country to function. The government employs people either directly or indirectly. You showed examples of both types of government job creation. The argument is that government job creation actually generates an increase in employment.

So, let’s say “a bunch” of unemployed people are hired by a construction company because of, say $9 million in tax dollars going toward an infrastructure project in Minnosota. That means that disposable income is reduced by $9 million for the project.

That means people who paid those tax dollars aren’t spending as much on clothing, food, eating out, toys for the kids, $100 shoes, new televisoins, automobiles, appliances etc. In turn, companies which provide these goods and services will have to lay off employees.

The sad part of this story is that people notice the job creation touted by politicians using tax dollars. It gets media attention and headlines. Yet the larger audiences don’t notice the larger number of job losses spread across the country from government job creation.

laureth's avatar

@bkcunningham – A lot of this depends on what the people were going to do with those dollars had they kept them. If they would have been spent in the normal course of living (on the same peanut butter and baby food), the difference is negligible. However, if you’re taxing it away from people who would sit on it instead of spending it, the potential for creating jobs is much greater. That’s why there’s the “tax the rich!” cry going out. By far, the poor and middle classes spend most (if not all) of their income, and the rich, who can only spend so much, sit on it.

However, as you might imagine, the rich seem to really dislike the “tax the rich” meme. That’s why they fund think tanks like Americans for Prosperity and the Cato Institute that tell you it does no good to tax the rich (and maybe that you should tax the poor if you tax anyone at all).

bkcunningham's avatar

If the burden of taxes is really on the middle and lower income families, I don’t suppose they are sitting sitting on the money instead of spending it, @laureth.

laureth's avatar

Sounds like a good reason to tax the rich, @bkcunningham. Too bad that’s a non-starter for Republicans and Tea Partiers.

bkcunningham's avatar

If by taxing the rich, @laureth, you mean people who own businesses or corporations, you do realize that in all likelihood, the burden will be passed back to the consumers.

bkcunningham's avatar

By passed back to the consumer, I think it is important to note that doesn’t necessarily mean in terms of paying higher prices for goods. It will also come in the form of the “rich” sending more jobs overseas (as we say), businesses shutting down and the rich finding options to keep their money out of the hands of those wanting to take it away from them.

Qingu's avatar

@bkcunningham, where does the money to pay private business workers come from?

Taxpayers.

What’s your point. Consumers pay money to businesses in exchange for services and goods; businesses use money to pay employees. Citizens pay money to government in exchange for services and goods; government uses money to pay employees.

Qingu's avatar

Also, @bkcunningham, I find it odd that you continually confuse taxing corporations and taxing wealthy individuals. You did this repeatedly on another thread.

To wit: taxing Tim Cook at a higher level would not mean that Apple has less revenue.

unused_bagels's avatar

@Qingu the point in this particular bit of contention is taxes are imposed. Free will is involved when a consumer chooses a product to spend their money on.

Qingu's avatar

@unused_bagels, that is one difference between the private and public sector. Another difference is that the leaders of private sector businesses are not democratically elected.

But I’m not sure what your point is, or how it ties in to job creation, the topic of this question.

(I’d also dispute that “free will” is involved for all private sector purchases. It doesn’t in monopolies. It also doesn’t exist when consumers are tricked or forced into purchases.)

WestRiverrat's avatar

All of a government workers salary comes from tax money. Government workers even if taxed at the highest rate would pay about 40% of their salary in taxes.

If all jobs were government jobs, how long could the economy sustain itself?

I know this is a simplisitic example, but it is still valid.

And Apple is not going to start hiring people until it knows how much those new employees are going to cost them. I short term tax credit is not going to entice a company to hire employees that it could potentially be stuck with.

Many companies that would hire are looking at what is happening to Boeing and deciding it isn’t worth the risk. Boeing did not lay off any employees in Seattle when they built their new production plant in SC, yet they are being sued by the US government for not building the plant in Washington.

Qingu's avatar

@WestRiverrat, who is suggesting that all jobs should be government jobs?

And Apple is hiring… in China, where, believe it or not, there is a totalitarian socialist government! Fancy that.

Do you honestly, truly believe that uncertainty about the status of a tax credit worth perhaps several thousand dollars in the long term per employee is what is preventing companies from hiring? Because I don’t think you actually believe this.

And Boeing broke the law. You don’t have to like the law, but you sound like someone complaining when a person who smokes marijuana in front of a cop gets arrested.

bkcunningham's avatar

@Qingu, it is perpetual motion you are trying to create. It doesn’t exist. It never will.

WestRiverrat's avatar

What law did Boeing break? They made a business decision to build their new plant in South Carolina partly because it was a right to work state.

From a Chicago Tribune article hardly a detractor of the current administration.

Qingu's avatar

@bkcunningham, please explain your comment.

@WestRiverrat, the Chicago Tribune is a noted Republican newspaper, although it did support Obama in 2008. And you cited an opinion column. You seem to have a repeating problem citing sources. Did you not learn in school that citing opinion columns is generally not a good way to support an argument?

The law says that companies under it cannot retaliate against workers simply because they are in a union. Boeing clearly retaliated against workers in Washington by moving their plant to a non-union state. They broke the law. Again: you can argue that this law is stupid, unjust, detrimental to job creation, whatever. I would argue the same thing about laws against marijuana. But I wouldn’t defend someone who smokes in front of a cop and then expects not to go to jail.

WestRiverrat's avatar

How did they retaliate? Did anyone lose their job because of this ‘retalitiation’, or do they get penalized because they retaliated against people they have not yet employed?

They did not move their plant or any jobs, they expanded.

Qingu's avatar

The plant was originally to be built in WA. They transferred the operation when WA workers went on strike. Boeing officials were quoted as citing the strikes as motivation for relocating the plant.

Under the law, workers have the right to strike, and companies cannot retaliate against workers for exercising that right.

ETpro's avatar

When Republicans ran on “Jobs, jobs, jobs.” in 2010, htey forgot to mention that the jobs plan was to get rid of as many jobs as possible and claim it was all Obama’s fault so they could get the one job they actually care about, President of the United States.

mazingerz88's avatar

@bkcunningham So, let’s say “a bunch” of unemployed people are hired by a construction company because of, say $9 million in tax dollars going toward an infrastructure project in Minnosota. That means that disposable income is reduced by $9 million for the project.
That means people who paid those tax dollars aren’t spending as much on clothing, food, eating out, toys for the kids, $100 shoes, new televisoins, automobiles, appliances etc. In turn, companies which provide these goods and services will have to lay off employees.

So building a bridge in America would cause lay-offs in companies that sells toys, shoes, TV and cars? Simply because taxpayers money went to building a bridge instead? But what about those who got the jobs building the bridge, aren’t they going to have the money now to buy toys, shoes and TV’s and save those jobs in your example?

bkcunningham's avatar

Where did the money come from to build the bridge?

laureth's avatar

After World War II, the top marginal tax rate in the United States was 90%. Those were boom times here. However, the one time that reducing taxes on the very rich resulted in an increase in tax revenue was when it went from 90% to 70%. However, despite failure ever since, some folks seem to think that reducing the tax rate to zero would result in infinite tax growth.

The Laffer Curve can only bend so far without actually laughing. ;)

gorillapaws's avatar

@bkcunningham so when Steve Jobs ordered a 246’ yacht to be made in the Netherlands, how did the tens of millions of dollars (hundreds of millions?) stimulate the economy? It didn’t, it actually weakened the dollar internationally, making things worse for the economy. If those dollars had instead been spent on building bridges, many local towns could have been greatly stimulated.

I’m not arguing that there shouldn’t be rich people, or that they shouldn’t be able to buy super-yachts. I’m making the point that giving the massive tax breaks to the super wealthy dosen’t trickle down nearly as much as the voodoo economists would have us believe. Furthermore, if he invested a billion dollars by diversifying his holdings with Swiss bank accounts, that money also actually weakens the dollar, and ultimately the economy.

Ensuring money is spent domestically via government sponsored infrastructure projects is much more stimulative than tax cuts, and avoids the macroeconomic catastrophe that tariff wars can create while having the same effect of keeping more money in the US. There’s no perpetual motion going on, just sound economic principles.

Qingu's avatar

@bkcunningham, where did the money come from to build your phone or your computer?

Again: I fail to see what the point of these questions are.

bkcunningham's avatar

@Qingu, the money to build my phone comes through the revenue generated by the 19 million active subcribers to TracFone. The money to build my computer somes from the some $74 billion in revenue generated by Toshiba.

Qingu's avatar

And the money to build bridges comes from the revenue generated by the US government.

Or loans/bonds taken out, which also applies to private corps raising capital.

Again: what is your point?

Ron_C's avatar

I would like to thank all of you for your rapid response and great answers. From what I read it seems that the Republican is pretty much an Ayn Rand libertarian approach. Get rid of as much regulation as possible, stop taxing corporations and make sure that the poor pay their share of income tax or value added tax. Somehow all of this will encourage American companies to create jobs (oh yeah, get rid of the minimum wage and child labor laws too) through some magic way.

We had this system in the early 1800’s and still had a depression about every 20 years until they finally fixed the system in the ‘30’s.

There is no plan to fix the infrastructure except to make sure that the expenses don’t fall on the top wage earners. I guess they will retreat to their gated communities with private police forces to protect them. When they venture out in the world, they’ll be protected by their “royal guards”. They’ll need them because if Republican policies prevail there will be a lot of poor people with a grudge that have nothing to loose by attacking their oppressors.

Sounds like a return to the middle ages and I suspect that even billionaires wouldn’t want to live in a world like that. Maybe like Ayn Rand’s “heroes” they’ll retreat to the North Pole. I just hope they take their Republican politicians with them.

mazingerz88's avatar

@bkcunningham Not trying to corner you on anything. I don’t have a thorough understanding of how the transfer of money affects the economy and would be more than glad to learn something new. But my question was this, if you would care to respond.

But what about those who got the jobs building the bridge, aren’t they going to have the money now to buy toys, shoes and TVs and save those jobs in your example?

I asked this because you cited that taxpayer money spent on infrastructure would cause some companies to do lay-offs. Thanks.

Jaxk's avatar

It’s almost funny that anyone would use the bridge example. The Oakland Bay Bridge is going through a tremendous controversy for this exact problem. The jobs created are in China. And it’s not just the Bay Bridge. China has construction in New york and around the country. We end up spending $500K to a million per job created in the US with this stimulus spending.

It should be obvious, even to the casual observer that we need to bring industry back to the US. We can’t do this with our war on business. If the US is not competitive, companies simply move to where they can be competitive, or they go out of business. It’s very popular to scream that everyone is moving jobs overseas and therefore they’re evil. They’re not evil, they’re just not stupid. The Republican plans are designed to make the US competitive. Until we do that, we’ll continue to lose jobs. The Senate has thwarted every attempt to pass any reasonable jobs bill. So we continue to be stuck in the throes of a recession. And all we seem to want is to spend another Trillion dollars to create a few hundred jobs. That ain’t solving the problem.

bkcunningham's avatar

I saw a news story about that, @Jaxk. @mazingerz88, the jobs created to build the bridge are temporary jobs. When the bridge is completed. The construction workers will be out of work and the money will be gone. I’m all for keeping our infrastructure repaired and operating safely and sufficiently. The point, to me at least, is projects like this isn’t creating jobs. Creating temporary jobs, yes.

Ron_C's avatar

@Jaxk I don’t think that there is a war on business it is more like a war by international corporations against American workers. We would probably have to import some steel from China or India to rebuild the Bay Bridge because we sold out the steel industry years ago. However I can see no justification whatsoever for local, Federal, or State government contracting out work to foreign corporations. We still have that capability here. Frankly, unions should be picketing the job-sites and union and other American shops should refuse to buy from or sell to the contractor. Sure the contractor will hire some token local labor but the profits return to China. The same problem exists when workers get a government job and spend their money at Walmart. That is why corporations need to be better controlled.

Sometimes our biggest enemy is are our elected officials and of course the State Department. We need to recall and fire them and elect America first politicians. My experience is that virtually all Republicans on the Federal level and the Blue Dog Democrats are holding this country back, they need to go.

mazingerz88's avatar

@bkcunningham Thanks for coming back and pointing out about the temporary nature of those jobs.

Jaxk's avatar

@Ron_C

I can see your bias showing through here. You want to ignore the problem and just say we should be willing to pay the exorbitant prices to sustain our bloated bureaucracy. By controlling corporations, I assume you mean more tax and regulation. The very problem that has driven most of our industry overseas to begin with. So if that is not working we need to pile on even more and drive what little industry we have left overseas as well. It’s not working. The more you try to control, the more you try to tax, the more jobs will move overseas. You’re not fixing the problem, you’re exacerbating it.

Ron_C's avatar

@Jaxk “The more you try to control, the more you try to tax, the more jobs will move overseas. You’re not fixing the problem, you’re exacerbating it.” So we just sit back and take whatever crumbs the international corporation’s in their great generosity, give us?

Jaxk's avatar

@Ron_C

We always seem to gravitate to these all or nothing arguments. The truth is there is middle ground. Not all regulation is bad nor is all regulation good. Not all companies act irresponsibly nor do all companies act responsibly. The competition will in most cases weed this out, but some regulation is necessary to insure the competitive process works. Companies compete for customers, resources, and employees. When a company becomes non-competitive in any of these, it loses market or goes broke.

I heard a news report yesterday that in N.Dakaota the unemploymernt rate is 3.5%. The job compettition is so fierce that Mc Donalds is paying $25/hr. So much for the minimum wage. There is always a danger in trying to compensate for some perceived problem with legislation. The market will work if we let it.

Ron_C's avatar

@Jaxk “The truth is there is middle ground. Not all regulation is bad nor is all regulation good.” I absolutely and completely agree. The current world problem happened, not because of over regulation, or necessarily bad companies, it was caused because the system was gamed. There were regulations on the books, prior to the “Modernization Act” which removed the wall between investment and commercial banks. The number and quality of the regulators were purposely diminished, and certain banks and ratings companies worked just inside the legal loop holes to sell worthless instruments with AAA ratings. We have wasted three years bailing out the banks and did noting to implement sensible regulation. There is plenty of blame to go around and it ultimately falls on us to pay for other people’s mistakes. I feel like my neighbor robbed the bank of a million dollars and I have to serve his sentence because he’s too rich to go to jail. That is what the Occupy movement is about and that is why Congress has a single digit approval rating.

I will bet, however, that more than 80% of the incumbants will be re-elected next November and the electoral system and public will be manipulated so that an candidate bought and paid for by big, international, business wins. Real progressives and reformers will be frozen out until there is a second Civil war. This time it will be more of a slave revolt.

ETpro's avatar

@Jaxk Damn, what is happening to us? We agree again. It seems to me the core problem is that with the deregulation of Gramm-Leach-Bliley, we have reversed socialism. Banks and hedge funds properly positioned (crony capitalist) were alble to make incredible paper profits by bets on hedges and packaged debt leveraged 40 to 1. When they won, the payoff was handsome. When they lost, the losses were so great that too big to fail kicked in.

We have privatized all profits for Wall Street and Socialised all losses. Investment works best in an environment of transparency and trust. Ultimately, the current climate isn’t good for Wall Street or Main Street.

Jaxk's avatar

@ETpro

Will wonders never cease? I’ll even add that I agree with your point on Gramm-Leach-Bliley. It should be repealed and Glass-Steagall reinstated. Of course I’ll add the point where we probably disagree and that is it should be reinstated instead of Dodd-Frank (which I view as totally missing the point).

The truth is the housing market would have still crashed, The banks would still have been too big to fail, derivatives would still have been traded, But the impact would have been greatly reduced. The banks would not have had thier tremendous asset power getting into risky trading ventures. It’s the difference between being broadsided by a motorcycle vs. a semi. Yea, the car is still wrecked but the chances of survival go way up.

Let me throw out one other piece of legislation I’d like to see. When banks or lending institutions fail, thier assets are sold. Corporations like Washington Mutual or Countrywide, went belly-up and the assets were sold for pennies on the dollar. All those loans were still valid and due but companies like BoA bought them cheap. What if we gave the borrower (the homeowner or the business) the ‘Right of First Refusal’? So if my loan is being sold for 10 cents on the dollar, I have the right to purchase it for that price (plus some accounting fee)? Seems like a small change with no government money involved but it gives the little guy (the unwashed masses) the opportunity to compete on a level field with the big guy where they are directly involved. In you vernacular, socialize the profit from the failure.

I’ll grant that the above suggestion needs some work and it unfortunately wouldn’t help everyone (me included) but it uses no government money and puts the profits from those failures back into the hands of those most directly affected instead of those most directly responsible.

Anyway, just a thought.

laureth's avatar

@Jaxk – I think I like that. Wow.

JLeslie's avatar

@Jaxk Yeah, very interesting thought.

JLeslie's avatar

@Jaxk Will you make a new question regarding the loan idea, so more jellies will have the opportunity to read it and comment on it? Evaluate why they think it will or won’t work.

Jaxk's avatar

@JLeslie

I’ll give it a shot. I didn’t have much luck with my last attempt at asking a question (the moderators hated it) and it was eventually deleted. Maybe my second attempt will be more fruitful.

ETpro's avatar

@Jaxk I would gladly exchange Dodd-Frank for Glass-Steagall. This is getting downright spooky.-

Jaxk's avatar

@ETpro

I don’t know if I’ve got a liberal streak or if you have a conservative streak. Or maybe, just maybe, there are non-partisan solutions. Nah, that’s ridulus :-)

ETpro's avatar

@ETpro Maybe neither of us are partisan hacks. Most everything is a partisan idea when it gets to Congress these days, but those are simply good ideas, and you and I both see that.

cockswain's avatar

@Jaxk Holy crap, @Jaxk , I’ll be damned if this site hasn’t finally put a chink in your stubborn facade. You make a fine point about banks assets being sold to other banks for pennies on the dollar. But that is very similar to the idea of allowing homeowners to renegotiate their mortgages, which would not need to be sold for pennies on the dollar. Maybe more like 80 cents or so on the dollar. If I recall, there was a program to assist homeowners in such a way but it was a pretty big failure.

But yes, if a bank fails and another bank then gets to buy, say, $200,000 in debt for like $40,000, essentially the homeowner could have had it for that much and had way more disposable income to pump into the economy to stimulate demand. Which surely we can also agree is a good thing (except for the environmental impact). And if the homeowner renegotiates to $150,000, perhaps the bank need not fail in the first place.

Ron_C's avatar

@Jaxk ” instead of Dodd-Frank ” you are completely correct. The Dodd-Frank bill is so full of garbage and exceptions (so I’ve heard) that it becomes totally ineffective. This huge bill, I believe it is over 1200 pages, is too big to read and too weak to help, thanks to the undue influence of the people that is was supposed to regulate. I agree with you, let’s get back to the Glass-Steagall rules and break up the banking monopolies. They are violating too many laws and need to return to their regional banking origins, the sooner, the better. Right now the banking and housing industries are an anchor on our economic throat and we need to cut the line before we drown in debt and corporate lust.

Jaxk's avatar

@cockswain

The two are really not similar. When Obama tried to allow the loans to be renegotiated, it created a loss for the bank based on the situation of the borrower. The bank didn’t want to do it, forcing it is a breach of contract law. The Right of First Refusal is another animal entirely.

If you look at bank failures, they are a result of insufficient cash. When Washington Mutual failed, it wasn’t the loan portfolio that caused it. It was a lack of cash. Renegotiating loans does nothing to generate cash. In fact one of the biggest reasons for the WaMu failure was that the secondary loan market dried up so that WaMu couldn’t sell the loans to generate cash. With a lack of cash the FDIC took over and sold the bank. The Right of First Refusal, solves that problem by creating the cash. If you want to buy you contract, you must come up with the cash, either have it or borrow it. Renegotiating the loan does nothing for this problem.

cockswain's avatar

Ah, I see the error in my thinking. I was more picturing it as homeowners defaulting and paying nothing rather than renegotiating and paying a substantial portion of their original debt moving forward.

But if someone is in dire financial straits and in danger of default , how would they be able to borrow the money to take advantage of the bargain in the Right of First Refusal situation?

Maybe I’m missing something obvious and appear ignorant right now. I don’t care. Better to be dumb for a moment than longer.

Jaxk's avatar

@cockswain

They wouldn’t. What I’m suggesting is not a scheme to help out those that can’t make their payments. It would not benefit everyone. The only thing it does, is provide the opportunity to the average American to share in the fire sale that results from a bank failure. A bank failure creates an opportunity for other banks to make huge profits. The average guy is excluded from those dealings. I merely would like to include them.

WaMu had over $300 billion in assets and JP Morgan bought them for $1.5 billion. Now that’s a bit skewed because JP Morgan also had to come up with another $30 billion in cash to cover bank deposits. But I would think that with a little creative formula, home owners could have covered most or all of that $30 billion by purchasing thier own mortgages even if the purchase price was much higher than the 10 cents on the dollar that JP Morgan offered. There’s a lot of money to be made from a bank failure. I don’t want anyone to lose any more than they already have but I’d like to see some of that profit be made available to the average guy. And the government doesn’t have to spend a dime to do this.

laureth's avatar

@cockswain – It would lead to a bunch more sub-prime mortgages (if the credit market ever loosens) to buy all those mortgages. And then more mortgages to buy those mortgages when those banks go belly-up.

cockswain's avatar

I’m unclear who would have first rights at this debt then. I’m not trying to pick apart an idea you threw out, just trying to understand your point since I like the concept.

So if my mortgage was owned by WaMu and they go belly up, instead of BoA getting to buy my, say $200,000 mortgage for $40K, I would have the first chance to buy it? So I would only then owe $40K on my house at that point? And if I don’t have $40K sitting around, I need to find someone willing to loan me $40K on a house that would be worth, say, at least $150,000 now in a bad market? Sounds good to me.

Jaxk's avatar

@cockswain

When the bank goes bankrupt the bid (in the case of WaMu) was $1.9 billion to buy thier assets. That includes what ever cash they have all the branch offices, equipment, and the savings/checking accounts. They need to have enough cash to cover the accounts per FDIC rules, in this case they needed an additional $30 billion. All this stuff gets valued anyway and the loans will have a value as a lump sum. Say the loans end up with a value of $200 billion and the from BoA ends up being $20 billion for that part. Or 10 cents on the dollar. The loan portfolio will have some complete losers maybe a second mortgage on a house where the value is less than the first mortgage. so even at 10 cents on the dollar some are a complete loss. The bid from BoA assumes that case so the real value of the loan portfolio is something less than the $200 billion to begin with. This is where the calculation gets tricky. So maybe we assume the real value of your loan is more like 20 cents on the dollar. Add in a decent transaction fee and say you can buy your mortgage for 30 cents on the dollar. BoA makes a reasonable profit to cover thier paper work and the loan losses and you can buy your $200K mortgage for $60K but you have to come up with the cash. Some won’t be able to do that but many will. Even if you have to use your 401 it is worth it.

No money from the government and more money in the hands of the consumer. BoA still makes a reasonable profit but not a killing (depending on your definition of a killing). Only the property owner has this right so it doesn’t open the bids to everyone. The formulas need work but I still like the concept.

cockswain's avatar

Maybe you should write the proposal to your local Senator so he/she can accomplish nothing with it.

Jaxk's avatar

@cockswain

Nancy Pelosi is not taking my calls.

cockswain's avatar

Maybe you could have tried your luck with the Governator.

Jaxk's avatar

@cockswain

I think he’s busy diddling the housekeeper. He certainly wasn’t paying attention to the economy.

Yetanotheruser's avatar

OK, it’s been two years more. I’ve looked through the Congressional Record for this past session. It seems like this House is more interested defeating the affordable care act (the law of the land, according to Speaker of the House Boehner), taking up 40 votes to repeal it, with many more to weaken or defund it.
I think the biggest contributor to jobs in the past 5 years has not been congress, but the sunsetting of the Bush tax cuts, which helped cut the federal budget deficit down $368 billion to $606 billion, according to the Congressional Budget Office.

Answer this question

Login

or

Join

to answer.

This question is in the General Section. Responses must be helpful and on-topic.

Your answer will be saved while you login or join.

Have a question? Ask Fluther!

What do you know more about?
or
Knowledge Networking @ Fluther