The 4% Solution, Amended

The Fed, the Treasury, the Congress, and the presidential candidates seem to come up with a new idea every few hours about how to solve our economic crisis. So far we have spent a couple of Trillion dollars to no avail. Why? The answer is simple. The majority of these ideas do absolutely nothing to solve the core reason that this crisis began and continues to grow every day- falling housing prices. So while Hank Paulson and friends are putting us into multi-generational debt, and fundamentally changing our economic system, nothing is being done or proposed to stem falling home prices, the core issue that must be addressed.

The solution, as I have mentioned before, is to insure that rates are so comppelling that it creates strong demand for housing. Whether it is just a matter of prodding Fannie and Freddie (who we the taxpayers now own), or actually subsidizing current and future homeowners by offering lower rates, lower mortgage rates are the key to getting out of this mess.

I mentioned a week ago that Fannie and Freddie must lower 30 year conforming rates to 5.25%. Now, I have backing. In numerous articles published today, noted former White House economist and Dean of The Columbia School Of Business has proposed that the government refinance every mortgage held by Fannie and Freddie into 30 year fixed loans at 5.25%. Of course, my plan goes further by making the 5.25% rate available to everyone (including new buyers) and for the government to cut checks totalling 4% of all new home purchases to the lender to buy the rate down to 4%. This, would greatly increase the demand for housing, drive prices up, and positively impact all of the overleveraged securities which are ailing the global economy. Best yet, it is multitudes cheaper than nationalizing the entire financial system, and will it free us to continue as a capitalist economy.

I have made a few amendments to my 4% solution plan. Here it is as bullet points:
- Force Fannie and Freddie to offer 5.25% fixed 30 year mortgages for all existing homeowners and all potential home buyers for the foreseeable future.
- Institute a plan to grant each home buyer a 4% cash credit to be used at closing to buy down the rate to 4%. This credit can be phased out over time as the housing market and economy improve.
- Require 10% down on all home purchases (this is lower than my previous 20% requirement, but with housing prices low and 4% mortgage rates, this should be doable).

It is a simple plan and it will work. If you the blog viewer, knows anyone of influence, please spread the word about the 4% solution. As always, your comments are appreciated.


  1. "It's a simple plan."

    That is for sure, my friend.

    "Just reinflate the bubble. Please, Hank, please?"

    Got to be one of the stupidest ideas I've ever heard.

    How 'bout maybe we go back to a time when only people who can afford a house own one? Or maybe that means fewer sales for you.

  2. Come on now--how can you take credit for that idea? Glen Hubbard has been saying that we need uniform low-rates on mortgages for much longer than you've touted the concept as of last week.

  3. The first I heard of it was last week. I'm not looking to take credit. I agree with Hubbard and I hope he expands on his idea, or at least his ideas are expanded on by the one-line, popcorn media.

  4. fair point. i can't believe john mccain is claiming it as his idea though :) hubbard also suggested to congress that the treasury should buy equity stakes in the banks a la warren buffet... looks like they're starting to listen, but clearly all the tools are now at the govt's disposal. ps: didn't mean to be rude, just a student at columbia business school!!

  5. Oh, not at all. Debate is good! When did Mccain claim such a good idea? I though McCain wanted to reduce the cost basis for people and burden the taxpayers.
    I emailed Hubbard. I haven't heard back from him. I wonder what he thinks of the rest of my plan.
    Also, do you have any good links that could read about Hubbard's overall plan. Not getting much from media sources (what's new)?

  6. The equity stakes make sense. I know Bush was resistant until he had no other choice.


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