The Barron’s Plan
How to fix America’s financial system and pull the U.S. out of recession.
If President Obama and Treasury Secretary Geithner want to fix America’s financial system and pull us out of recession, they should take $200 billion of “TARP” money and give it to banks and other institutions that hold subprime mortgages and related securities. The government would do this on the condition that the money be used to cut the principal amount of the nation’s roughly $850 billion of subprime mortgages by about 25%. Monthly payments would be trimmed accordingly. This would give homeowners in the subprime category a better chance of repaying their mortgages, and in many cases it could put their principal amount below the current market value of their homes, reducing the temptation to walk away from their obligations. The plan helps the banks and other mortgage holders by giving them funds that could be used either to invest in the credit markets, make new loans or absorb the losses required to sell off the toxic subprime mortgage assets. Banks could also use the funds to offer relief to troubled borrowers who have prime mortgages. All of these activities would bolster the economy.
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