A Bottom Up Rescue Plan for the Auto, Bank and Mortgage Companies

Obama keeps talking about bottom-up approaches to the economy. Here's how it could look for the big three auto companies and the banking and housing industries.

This morning, on MSNBC's Morning Joe, Mike Todd, NBC's political director asked, wonderingly, what five big items Obama would spend the bailout money on. I think he gets it really wrong, like just about everyone else. Obama has talked about taking a bottom up approach to rescuing the economy. That means there are no "big" items. Instead, there are millions of small items, called PEOPLE, or maybe, as well, small business.

A bottom up approach has so many advantages to the obviously failed approach treasury secretary and thief in chief Henry Paulson took.  First, it spreads the money around to consumers. 

The challenge is, consumers are likely to use a chunk of money to pay bills, not to buy things. So the trick is to offer money that will not be used to pay bills, but rather, to help the companies that need help. The way to do this is with coupons. Give every taxpayer and worker in America a coupon, or a few options for coupons. The coupons will allow them to buy a car manufactured in the US at a $5000 saving, including trade-in. Offer $30 billion of those coupons-- about ten million coupons. But require that the car they buy gets at least 45 miles per gallon. And require that the used gas guzzling cars they trade in be exported out of the US.  The auto companies will come up with the cars and if they don't, they deserve to go out of business. The congress's talk of minimal increments in mileage every year is a cowardly, weak, irresponsible goal.  We need to remove gas guzzling cars from US roads-- and to start taxing them, so people who don't want to replace them pay the extra cost in energy security we pay, importing foreign oil. This is a bottom up approach that kills a few birds with one stone-- energy imports effects on our national security, bailing out the auto manufacturers, global warming, air pollution...  And the price is so low. Believe me, if the auto manufacturers are faced with coming up with cars or losing business to Toyota and others, they'll make it  happen. Trust the market, as the capitalists say. 

Then, offer another $120 billion worth of coupons worth $12,000 spread over four years to people with mortgages they can't afford. That'll help ten million home owners by knocking $250 a month off their payments. On top of that, require the banks that receive the coupons to renogotiate terms that salvage the homes from forclosure, where the banks give up half of what it would have cost them to dump the homes, maybe more than half.  The money can be a loan that will be repaid when the home  is sold, out of the equity that eventually accrues.

Offer another $150 billion to people who will buy some of the forclosed housing inventory the banks are stuck with-- say, $13,000 towards purchase and closing costs and $12,000 spread over four years, so $250 a month is knocked off the payments in the early years of the mortgage. The closing costs will be low, say, two percent, which will give the bank some money, but decrease the entry cost into the home. Make sure the buyer puts up some of his or her own money, so there's a real stake in the investment. But this could help take six million foreclosed properties off the market and get the money to banks that attract consumers with effective offers.  Again, these would be coupons. 

That will use up $300 billion of the $350 billion it looks like Bush/Paulson will be leaving Obama to Work with. 

It might take a few billion to administer the coupons. The banks can have some of it and they can hire some of the recently laid off workers too--  800,000 if a  $20 billion budget is used to pay an average of $25,000 a worker.

I'm going to guess that the $300 billion in coupons will also enable banks and car companies to retain workers and maybe hire at least 400,000 more. That would be a good start. 

Now, this idea may not please people looking for "big items," but it could do what Paulson has certainly failed to do-- end the housing crisis, rescue the big three auto companies and move us pretty far along on ending our dependence on foreign oil.

And while we're at it, we might consider buying another twentyfive million used gas guzzlers for export, providing coupons for buyers of new, US-made cars over the next five years. If we give $5000 a car, and get a return, exporting them, of $3000,   it will cost he US $50 billion. We'll be providing incentives to dump the cars by adding taxes for gas guzzlers every year, on all cars over five years old. Of course, by the sixth year, the coupons for these deals will require gas mileage of 60 or 70 miles per gallon. The idea is not just to rescue the car companies, but also the planet.