To Congress: Please Read Before Bailing Out!

One of the commenters on my recent blog asked me to submit the bailout proposal I had described to "EVERY SENATOR AND CONGRESSMAN politely requesting that the showmanship, red herring concessions and false outrage end."

Morpheus008 has a fair point. Since the stress level is running high for everyone in Washington and a clear strategy has not yet been formulated, here are some talking points to consider in the bailout negotiations. My plan is presented in summary form to make it easy to use in any Congressional meeting.

Members of Congress, I respectfully request that you take a moment to read my suggestions, as an independent, non-partisan thinker, for the bailout plan.

The terms for how the bailout money should be used must be viewed as it would in a negotiation to prevent foreclosure on any property. The approach described below is being applied by pro bono foreclosure prevention projects everywhere.

First, there should be some basic terms that could be applied to the mortgages behind the pools of securities at risk:
  1. Mandate the renegotiation of the terms of all non or poorly performing mortgages to a reasonable and fixed rate of interest.
  2. Remove any other onerous terms.
  3. Require each bank to analyze the loan portfolios they hold to determine the good, the bad, and the ugly.
  4. Require the banks to present this information to the Government under oath with the threat of prosecution if the information has been falsified.
  5. Allow homeowners to stay in their homes so long as they begin paying under the new terms and continue to act in good faith on their payment schedules.
  6. Add any outstanding balances to the back end of the loans.
  7. All of the above can be done without the Government actually purchasing the loans from the banks.
The bailout terms should be tied to the following regulatory oversight, legislation and executive compensation changes:
  1. Require "earn-out" provisions of the executives of all involved financial institutions instead of limiting their compensation. These "earn-outs" would vest over a period of years, be tied to the turnaround efforts, and thus, encourage the long-term health and stability of the firms they run.
  2. Require bailed out banks to make restitution to the American people to relieve us of our projected $11 trillion national deficit by paying back a percentage of profits over time.
  3. Structure careful oversight of derivative products that are tied to the heart of our economy.
  4. Include meaningful regulatory reform such as emergency Glass-Steagall-like measures.
  5. Direct appropriate regulatory enforcement actions against corporations and individuals who intentionally committed wrongful acts.
  6. Provide resources for the criminal investigation and prosecution of both corporate and mortgage fraud.
  7. Ensure commitment that the safety and soundness of our banks are the overarching mission.
If these ideas can be agreed to conceptually, then perhaps a preliminary plan can be reached. If the goal is to thaw credit and restore confidence in the markets, then
nothing
will work better than performance of the mortgages underlying the mortgage-backed securities.