100k Business Loan

Ever felt after you’ve read the paper or scanned the headlines in Yahoo or Google that the world needs some serious head space adjustment. Ever wonder what kind of medication or recreational pharmaceuticals that our political and economic leadership are on? It’s almost like we’re in a walking dream or hallucination where down is up and right is left. When Banks began to collapse because of bad decision making; the government stepped in and gave them billions and the first thing the executives did was to give themselves millions in pay raises and “performance” bonuses.

Performance bonuses for the greatest presiding over the greatest economic failure in over 70 years! Is it just me or does this make any sense when you get fired from McDonald’s for showing up late a couple of times? Now in the small business world failure means bankruptcy – in the big business it means the government will save you – no worries. $700 billion in stimulus has gone next to nowhere but to line the pockets of corporate banking executives and give Bernard Bernake, Chairman of the Fed an uncomfortable night or two trying to figure how to give so much money away so fast. For the rest of us – 9%+ unemployment, $2 trillion debt and more taxes – how can we get a handle on this?

Let’s flip the equation on its head and see how $100,000 not $700 billion can save the economy and rest of us. Government is so concerned with saving big business that they don’t know the country’s economic structure has been moving from traditional economics for the last 15 years. In the 1930s the answer was to prime the pump (business or government programs) and the economic engine would get moving. In the current economic environment this won’t work as effectively. Those funds gets absorbed by the very businesses government is expecting to redistribute the wealth and it doesn’t reach the market.

The current economy is driven by the consumer and their personal confidence – most economists know this but they don’t understand the impact. Consumerism is the economic engine in today’s marketplace – technology, choice, transportation, etc. has freed the buyer from traditional attachments. The economy is evolving from tops downs to a new balance driven by a bottoms up orientation. What does this mean? It means that if you want to prime the pump don’t go to business that just showed poor judgment and expect good things to trickle down – provide relief directly to the taxpayer. “Cash for Clunkers” is the first recognition that this approach produces instant results.

For $100,000 we can change the economy by the end of the year. Here’s how:

The government establishes Consumer Confidence Accounts (CCA) with a $100,000 balance for all citizens that filed individual tax returns during last year.
This money is not disbursed, it is held by the federal government. It can only be used for debt associated with specific existing activities (home loans, car loans, credit cards, medical bills, etc.).
Funds can be applied to multiple types of debt with the total not to exceed $100,000.
Funds can be disbursed either by the debtor authorizing the creditor to access the account for a specific amount or by the government releasing the funds to the creditor after the taxpayer submits identifying paperwork.
The CCA balance times out at the end of the year.

Who Wins

1. Taxpayers – two forms of debt have destroyed the economy – home loans and credit card. A CCA would enable most home loans to become manageable. People facing or in foreclosure or difficulty in making payments could bring themselves current and lower principal. It could also wipe out most credit card debt issues.

2. General economy – one of the reasons that the stimulus hasn’t worked is that it has targeted and rewarded failure. There are literally billions in toxic loans that that are buried in the inventories of financial institutions waiting to explode – they are like superfund toxic waste dumps. But while they are toxic from a banks perspective most are manageable from an owner’s perspective. With a CCA to bring down the outstanding loan balance, payments become manageable. This would free up billions in constrained capital that would immediately be put back into the economy soaking up product inventories, driving demand and stimulating jobs.

3. Confidence – What drives the Wall Street and Main Street is not rationality. It’s how you feel – if consumer confidence is up; the market is up. If an analyst thinks things aren’t so good – the market goes down and when the forecast changes; the market goes up. But the physical reality hasn’t changed much – AT&T is still the same, etc. What changes is attitude and perception that drives positive choices and performance. As the dominoes of the financial industry began falling, the first thing they did was freeze credit. Because they froze credit, everything that lived off revolving credit from consumers and retail business fell hard and fast.

4. Small and Large Retail Business – As the “Cash for Clunkers” program showed – there is tremendous pent up purchasing demand and with reduced large scale financial burdens, people will exercise their buying power in the retail sector immediately. This will have the effect of reducing inventories and stimulating manufacturing.

5. Government and Politicians – the Federal government wins because they are perceived as doing something concrete for immediate taxpayer relief without the downside of allocating funds to businesses or states – where the consumer sees no direct result. As the economy picks up – tax revenues increase. Increasing tax revenues also apply to states.

Who Loses

1. Credit card companies – with the elimination of considerable credit card debt these companies would stand to lose considerable interest revenues and their asset values could plummet in the short term.

2. Financial institutions – all companies with asset values associated with mortgages or large personal debt – foreclosure, debt management, finance companies, etc. For banks it will actually be mixed because loan portfolio values will decrease but foreclosures will also decrease.

3. Banking Bonus Babies– executives who have taken taxpayer funds to save their institutions and their jobs but chosen to reward themselves for being failures with “performance” bonuses and pay raises.

4. In the short term there will be businesses that will suffer short term constraints because their business models have been sustained through interest around debt payments (e.g., furniture stores). But the release of buying power could offset these losses.

How it’s paid for

There were roughly 131 million individual filers in 2008 meaning that this program would cost $13.1 billion assuming every filer used every dollar in their CCA. That’s less than ONE bailout loan to AIG or Bank of America. This program would be funded from 3 sources:

Reallocation of unspent monies from the current $700 billion stimulus program
Flat tax of 70% on all executive bonuses distributed from companies who received Federal bailout money.
Any CCA funds used would be considered income and recipients would be taxed at the normal rate. The tax would be prorated over a 10 year period and begin in 2011.
Unused CCA funds would go back to the Treasury when the program is over.

Conclusion

A Consumer Confidence Restoration Act will bring immediate and substantial benefits to the economy – business and personal. The program has complete payback, no additional economic burden or increase to the deficit. It requires no new funds, and stimulates immediate economic growth. It will build immediate taxpayer excitement and positive inertia, which the heart of expansion. Will it cure the effects of poor business practices overnight or get people back their jobs within the next 12 months? In some cases – yes and in others, the new economic readjustment we are all going through says that some of those jobs are gone forever.

We as taxpayers need a fresh start. It is time we all took more personal responsibility over our financial well being and do whatever it takes to make sure we don’t allow ourselves to get overwhelmed again. Get with your representative today and tell them about this idea to positively change our lives and the future of our country.