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Oddly, I see somewhat of a consensus emerging here. Even Rick and I share some common ground! From where I am sitting we are focusing too narrowly on the real estate market and those pesky MBS's. We need to focus more strongly on the overall economy, which may now be threatened.
We're not really interested in the MBS's and those who created and profited from them. If they take their licking, along with the house flippers, and those who bought too much house for their income, what care we? Not much, until it effects the rest of the economy right? So how do we keep the rest of the economy cooking right along while the MBS matter sorts itself out in the market. (And the market will sort out the MBS mess one way or another-they put 'em together, they can soprt them out, given time.)
I'd propose something I stole from somewhere I cannot remember but it made some sense to me, a free market capitalist. The government can do three things: eliminate the corporate income tax, eliminate the capital gains tax, and take the $700 billion and announce that it is being invested in fast-tracking a nationwide nuclear energy program. The latter would be spent not on the nuclear energy industry itself per se but on expedited environmental impact research, land acquisition, and all those usual government hurdles that make building a nuclear plant a project for your grandkids enjoyment.
Cap gains and corporate income tax eliminations would do two things. It would instantly make corporations more wealthy, needing less investment monies, and it would also make the market much more desirable overnight, encouraging more participation immediately. Both would inject much needed liquidity into the market and industry immediately.
With the economy humming along, immensely aided by a massive demand for new labor in the power plant construction industry, the market will have ample time to devalue housing to a rational level as well as find buyers, or no buyers, for those pesky MBS's. Medicine will be administered but, hopefully, only to the patient. We might even like the results of this so much we might even question why we taxed corporations and capital gains in the first place!
And the taxpayer might get a tangible bang for his buck!
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