November 05, 2008
This week was the culmination of a long campaign. With all the election noise (campaign ads, yard signs, etc.), it is hard to get away from it. Last week Saturday Night Live had a financial expert on during the “Weekend Update” segment and started shouting “FIX IT!” That was his answer to the financial mess that we are in: “ THEY BROKE IT!, and now they need to,” and he shouted again, “FIX IT !”
This got me thinking, does our new president really know how to fix it? Obama wants to raise taxes for those earning over $200,000 or $250,000 and raise the capital gains tax to increase government revenue. At a time when there is an oversupply of real estate on the market, the Obama plan could potentially add more sellers as they look to avoid higher capital gains taxes in the future.
Real Estate has always been attractive due to leverage. Obama's plan does not attempt to solve the liquidity crisis, the extreme tightening of the banks’ credit standards, or increase the desire for first-time homebuyers or investors to WANT to buy a house.
So, along with Henry Paulson and the thousands of other people that think they have a plan, here is my plan to FIX IT!:
1. Lower the Fed Funds rate to 1% (DONE)
2. Give first-time homebuyers a tax credit for 2009. It needs to be significant.
3. Give investors a tax credit for 2009. This credit would be less than #2 above.
4. Give investors a lower capital gains tax for properties they hold for five years or moer.
5. Pump liquidity into the banks (partly done) and end the Mark-to-Market accounting rule for current loans and assets held until maturity.
Yes, my plan is simplistic and would meet strong opposition. Potentially, the wealthy investor would profit from his or her real estate investment. The first-time homebuyer sitting on the sideline would also profit from a large tax credit. However, we need to stimulate interest in real estate and housing NOW and stop the decline of values, which is undermining our banks and financial system. Current homeowners can benefit as well, if there is an increased pool of buyers and a potential stabilization in prices, protecting the equity they already have in their homes.
Remember, we all need to work together to pull us out of this crisis and
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