I was listening to the radio this morning as I drank my espresso and heard an interview with a guy named Kim Shaffer, an attorney in Fairmont, MN. He wrote a letter to the editor of the Star Tribune yesterday that made too much sense. It had the following main points:
- Bankruptcy courts should have the power to restructure home mortgages as they do in Chapter 12 of the Bankruptcy Code for farmers. They could impose new payment terms with a present value equal to the fair market value of the house. The homeowner gets payments similar to those a new buyer would get, and the lender gets a performing loan at the same value as if they foreclosed and resold the house.
- Don’t put other restrictions on the foreclosure process (especially on the loans that the government buys from financial institutions). Doing so would slow the process of restructuring the loans and put the taxpayers at risk of not getting their money back from the bailout. Focus on the bankruptcy change, and the market and courts will take care of the rest.
- Don’t restrict the pay of corporate CEOs as part of this process. This is not a time for class warfare, it’s a time to keep our financial system working and to prevent future problems. Focus on future regulation and buying the securities at a discount to limit the taxpayer’s exposure.
- Do regulate the financial industry (appraisers, mortgage brokers, investment banks, financial rating companies).
- Don’t mandate or encourage loans to unqualified buyers (no more $0 downpayment or no-documentation loans).
I started reading this as I listened and the third point made me do a double take. What? Certainly these CEOs are making a ton of money (many, many millions) for the shoddy oversight they’ve provided. This is true, but restricting the pay of these CEOs is short-sighted. With no limits on CEO salaries in any other businesses, you’re going to attract a lower-end, less experienced brand of CEO for these firms.
The most interesting point to me, not being a farmer, was the item on Chapter 12 bankruptcy. Create a chapter that allows this with non-farming folk and you’re well on your way to cleaning up this mess from the bottom up.
That looks like a win/win to me.