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Preface:

Special thanks to Gabe Houston for his proposed “SOLUTIONS” document on the subject. After months of encouragement, Mr. Houston has memorialized our collaborative thoughts and conversations to paper. The proposed SOLUTION is a response to a letter sent from Leo W. Gerard of the United Steel Workers Union to Treasury Secretary Paulsen, dated October 28, 2008. In this letter Mr. Gerard clearly outlines the short comings of the actions taken by the Congress with the $700 billion dollar bail out.

This document provides an economically responsible and realistic solution that was ignored in the frenzy of the last actions of an exiting administration.

Mr. Houston and I have first hand knowledge of the banking sectors’ unwillingness to take losses and liquidate their non-performing assets. There have been an innumerable amount of investors standing in line offering to buy billions of non-performing REO assets from the banks holding the properties. These investors are simply seeking to assume the risk and gain any potential profit in converting non-performing assets into fully performing investments.

The greed of the banking sector prevailed as banks were unwilling to liquidate their REO holdings for relatively small realized losses. The banks refused offers by fund managers, portfolio managers and individual investors to purchase both individual properties as well as bulk REO portfolios at 50-75 cents on the dollar. The banks to date have refused to liquidate their losses at any amount below 80-95 cents on the dollar. Thus plunging the credit market into what the banks conveniently and erroneously label “liquidity problems”. Lack of liquidity implies there are no willing buyers for a willing seller. The current “lack of liquidity” in the housing market is simply a result of the banks unwillingness to sell their REO holdings to the market at current market prices. Today’s prices are deemed “too low” by the banks. Selling at the current bid price requires the banks to take a loss on their investment as a result of their poor and irresponsible investment underwriting. Instead of realizing these losses, the banks sought and received a governmental bailout on the backs of the U.S. taxpayer.

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