Pay off the Home Loans, NOT Buy Out the Bad Debts!

By Osama El-Kadi September 2008



In my article of the 17th September:

The One Move That Will End The Credit Crisis!

I advised the US Government to pay off the defaulting mortgage loans in full and own the physical assets till the owners can manage the “more Humane” rescheduled repayments.

This solution to the credit crisis put the focus of the financial rescue package on the house owners and not the financial institutions. Having said this, such a move would also separate the bad institutions from the good ones and let the bad apples fall.

How would this work?

The US Government is now proposing a $700 Billion Dollars to take over the bad debts from the financial institutions and thus breaking them free to continue their messing around with the nation’s money and future.

The US government is in reality and with such a move is rewarding the financial institutions for the bad and criminal practices they undergone for years by buying off these inflated bad debts.

What I in effect suggested and I hope someone is listening out there… is that for the US Government to simply cut the fuel that is inflaming the crisis instead of trying to contain the resulting fires itself.

By continuing to be blinded to the real root cause of the problem, they will cause other fires to start as soon as they put this one off.

What is fuelling the credit crisis is the inability of the home buyers to pay off their mortgage loans, therefore the government if it wishes to end the crisis must pay off the full house loans of the defaulting owners at today current value, own the actual assets and not the paper inflated one owned by the institutions.

Such a move will cost only half the amount ($700b) proposed by the US Government to resolve the credit problem.

Financial institutions will be forced then to settle their bonds once the loans are paid in full.

Any institutions that gambled on the full 25 years debt size (including interests) will fall by the wayside and the one that done business reasonably and fairly will survive.

Is this so difficult for the US government to understand?




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