Advise for President Elect Obama

While it is troubling to hear Meredith Whitney speak of double digit
unemployment and the need for a second bailout in 9 months for the
financial industry, it is clear that Obama has been tossed into the
deep end of the pool(well, so was George Bush but he had a 9 month
honeymoon).
There are a series of actions that he needs to take and here are a
few ideas.

(1) Start work on a stimulus bill that is targeted at immediate relief -
notably towards holiday retail sales. A retroactive tax cut for 2008
and carrying over to 2009 that is trickle up - implying that is aimed
completely at people making $100,000 or less.

(2) Stop foreclosure on primary homes upto a 2 month period - while this is on,
look at three different proposals
(1) Hire a small army of financial/realty workers who can go and meet with
the people being foreclosed and the banks and servicers and do one
of the following -
(A) Decide that the home is not appropriate for this owner - if not, then
see if the owner can own a less expensive home and downsize the owner
(B) If the home is appropriate for the owner, then look to move the owner
to a different mortgage - example an FHA loan or a new adjustable term
mortgage(where the payment is fixed and the term adjusts with the rates)
(C) offer mortgage insurance to the homeowners

(2) For homeowners who have been foreclosed on, look to find an appropriate
home and a mortgage and place them there.

(3) Pursue new securitization with these mortgages through overcollateralization -
the Govt could be the equity tranche or z-tranche and offer the buffer needed
by the loans

The broad principle is that a more efficient system is a more conservative one which
thinks for both the consumer and the end borrower - the govt acts briefly as a
catcher in the rye and puts the children back in play. Also the whole value chain for
securitization is broken and it needs to be put back into place. By fixing this value
chain, and steadying the mortgage market the govt puts in place a system that can
work. Eventually the private sector can get back into this. The question today is
that the banks forgot not just about "Value at Risk" or VAR but also that their
Values were at Risk and ofcourse today their Valuations are all at Risk(well if you
do not agree you should listen to Meredith Whitney).

But the point here is "Yes we can". It takes a can do attitude to restore trust and faith
and a willingness to be forgiving. So many mistakes have been made, and if one can
forgive Maurice Greenberg and Dick Fuld, one can also forgive the homeowner who
bought a second home hoping for an eventual profit who is about to lose his primary
home. The housing market will eventually correct itself and recover sufficiently.

It is important to stage a Govt Investment bill such that communities facing severe
local recessions are the first to receive projects. Investment tax credits can also help.

Fixing the problem for the middle class and those who were not so fortunate but who
did aspire and believed in the "Ownership society" is an extremely important value
today. The homes are there and people want to succeed.

The world economy will quickly recover as the elimination of American uncertainity
will have a contagion effect. But quickly act, Obama must.