52% of all Americans do not pay income taxes – a startling percentage in light of the demand by the Obama administration that the rich should pay more. So if the logic continues the majority of Americans already take a free ride and based on the current plan more people will receive more and contribute less. Something for nothing, converts something to nothing.

Maybe this model should and has to be reexamined.

If you live in the US you need to contribute to the country’s well being. If the government is in the business of providing for everything, what is the purpose of the individual to consume, to take? Not acceptable.

Where has this been an effective model? The test is simple: does it work? Has the government had a history of good decisions? Or as a past mayor of New York Edward Koch used to say, how am I doing?

Let’s look at the history- the history of near decisions. With the economic downturn of the recent 4 year and the potential collapse of the banking system, the government provided a bailout program to shore up the banks by giving banks money at practically zero cost. With zero cost money, banks lent out the money reaping significant profits and the ability to repay the zero cost money. Okay the banks are fiscally solvent. But are they?

Are the customers better off? More profitable? Expanding?

The foundation is on shaky ground. It does not make a slight bit of difference what you build on top of shaky ground, it maybe pretty but it isn’t safe.

Let’s refocus on making the borrowers more stable. Maybe just maybe, we need to address the cost of money to the borrower. If the borrower is healthy the lender has a better chance of being repaid.

How did we get to higher interest rates? The history of this goes back to the lifting of usury caps on interest rates, and specifically on credit cards. Without boring you with history lessons about Citibank moving the credit card business to South Dakota and the state legislature lifting the usury ceiling in exchange for jobs. Believe it, you can look this up at http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/rise.html

The real issue is what is a reasonable interest rate, if your cost of money is practically zero. If the risk free rate on government debt is .9% for a 5 year treasury security, lets say it is 4 times the risk free rate so a good return on money is 4% with a lending cap rate of 12% for high risk, speculative lending.

So lets make rate workable and inject money into the economy in a place that has a need, the ability to repay and make the banks responsible for its lending practices.

Let’s cap all interest rates at 12% – that is the usury ceiling. Let’s reduce all interest rates on outstanding mortgages, credit cards to that maximum and all interest rates on mortgages, reduced by 2%. The government can pick up the cost of the “re-pegging of rates”, not refinancing, of say $500.00. The banks create fee income from refinancing. All the paper work is there from the original closing; there is no need for attorney fee’s or title insurance. These fees drain the consumer for problems that originate in the abuse of the mortgage system.

For new mortgages, closing fees are appropriate and maybe necessary but for refinancing, it just abuse. If the original loan was improperly closed, the fault lays with the original transaction.

This proposal is not a bailout. This is a resetting of rates. Commensurate with the current rate environment and desired rate environment to control inflation. This is a policy decision to let money in the economy stay in the economy with the consumer, the borrower and taxpayer. Create a new value system based on affordable cost of money and risk. If you can successfully pay your mortgage and credit cards you should be rewarded and not have to subsidize bad decisions by bad banking practices. Legislative mandated risk taking.

If it is the desire for the government to mandate lending practices for social reform, the risk must be borne by a government insured and funded entity. That entity must be fully funded and overseen by a regulatory body that reports of funding level, measures success of the program. This program must have fixed parameters as to the lending levels, access requirements and sunset provisions such that once the program has achieve its requisite goals, it ceases to exist or if continued, continues by legislative approval.

Getting back to the interest limitations, the reorienting of the economy based not on speculation but on sound principals of ability to pay, resets the real estate market and creates unencumbered cash in the hands of the consumer and ultimately spurs economic growth. This growth is organic, in that the consumer has the money, subsidized with a no bailout basis.

The bailout mentality of loss safety nets with the government baring the risk of speculative default has to stop. The government’s roll is not to create an environment for speculation and acceptable high risk taking for individual gain, with failure borne by the taxpayer.