While I certainly would not call myself a Dave Ramsey disciple, I am a fan of the debt snowball method of debt reduction, and I am currently following a modified version of the debt snowball to eliminate my credit card debt. Dave has come up with what he calls “A Common Sense Fix” to the economic problems we are experiencing in the U.S. right now. The common sense fix is part of his “Three Steps to Change the Nation’s Future“, which include: 1.) praying for our politicians, 2.) Sending the common sense fix to your representatives and senators, and 3.) Send to others and ask them to do the same.
So what is the common sense fix?
Here are the main points of Ramsey’s plan:
INSURANCE
a. Insure the sub-prime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
Ramsey also has stipulations for any company that receives help from the government in the form of insurance.
MARK TO MARKET
a. Remove mark to market accounting rules for two years on only sub-prime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
Dave believes this will have a stabilizing effect on troubled banks.
CAPITAL GAINS TAX
a. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.
While this may be popular with many people, others will see this as a tax cut for the rich, and may oppose it. Ramsey thinks to free up money, rich people are the place to do it as it would stimulate the economy.
So will the common sense fix work?
Well, not being an economist (and many of them do not agree on this issue), I certainly am not sure. But the ideas do have merit. Although I have not read the full 110 page bailout plan that failed, the ideas in Ramsey’s plan seem like they would stimulate the flow of money throughout the economy, which I am not 100% sure would have happened under the failed bailout. I also like the idea of the government not buying the “toxic debt” from some of the companies that were so eager to purchase them over the last few years, but rather insuring the mortgages themselves. I like the fact that these steps can be tries at least, without mortgaging our children’s and the nation’s future.
Read the full text of the Dave Ramsey Common Sense Fix here.
What do you think of Ramsey’s plan? A good idea? Foolish thinking? Let me know!
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{ 2 comments… read them below or add one }
working poor 09.30.08 at 10:15 pm
I’m having a hard time with the idea of taxing people who work hard at a higher rate than people not working at all.
RC 10.01.08 at 6:24 am
@working poor- I can’t say I disagree with you, even though it is not a tax on earned income. It seems other types of tax cuts, such as on earned income, could have similar results as Dave has intended.