This idea is from credit analyst Brian Reynolds of WJB Capital in New York: “He thinks the U.S. Treasury should offer $500 billion in rebates to U.S. citizens. But instead of paying with a check, it should deliver new zero-coupon Fannie Mae (FNM.N) bonds. A zero-coupon bond is one that accrues interest for some specified period, such as 15 years, and then is paid all at once later on. If people wanted to spend the money right away, they could sell the bonds for whatever they could get for them in the marketplace, which wouldn’t be much. If they wanted more money, they could hang on to the bonds, and the government would pay the full face value at maturity. Nice and simple. The genius of this plan is that it would deliver the money straight to the people instead of to Wall Street – a sure vote-getter. “We’d still be borrowing from our children, but we’d be borrowing less,” Reynolds says. Fannie Mae, whose debts are now explicitly guaranteed by the U.S. government, could use the money it raised to buy banks’ bad assets or provide capital directly. By this plan, citizens would become banks’ creditors, not their owners, so you wouldn’t have that acrid whiff of socialism.”
I like the fact that there is some thinking outside the box here, but speaking as a GSE employee, the last thing we need to do is arm the GSEs with more liquidity. RE is still inflated and it’s mostly the government’s fault due to its creation of the GSEs and all the artificial liquidity that transpired, its lack of regulation of the GSEs, and its idiotic policy of demanding subprime lending (subprime has a 40% default rate and is single-handedly responsible for most of the mess in the real estate markets). In fact, the GSEs need to be disbanded all-together. Over the next 20 years, they should be phased out into the dust-bin of history.
Just like the $600 payment that did ZILCH…