Experts' Opinions Differ on Financial Rescue Plans

Lora Bentley

Nationally syndicated radio talk show host and author Dave Ramsey says Sarbanes-Oxley is partially to blame for the mess the economy is in now. What's more, he says temporarily changing one of the law's accounting rules will help to create liquidity in the market so the government doesn't have to spend $700 billion to bail out floundering firms.

Here's the idea, which Ramsey credits in part to a writer at The Economist:

  1. Allow subprime loan holders to obtain goverment-backed insurance on the loans if they agree to rewrite loans that are more than three months in default as 6 percent fixed rate mortgages and cancel golden parachute payments for current and future executives for as long as the company holds such loans. (Ramsey says this will cost about $50 billion, which isn't much compared to the $700 billion currently on the table.)
  2. Get rid of the "mark to market" accounting rule in Sarbanes-Oxley temporarily -- and only for certain subprime mortgages. (No cost to taxpayers, according to Ramsey.)
  3. Eliminate capital gains taxes, which will also cost taxpayers nothing, and will create immediate liquidity.

Since I first read Ramsey's suggestions, I have heard from at least one financial advisor who says the idea might have helped last year, but the problem is more than a balance sheet issue now. There is also the objection that eliminating the capital gains tax aids the rich but doesn't help the average Joe on Main Street.


Ramsey acknowledges the latter, but notes:

The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down.

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Add Comment      Leave a comment on this blog post
Oct 1, 2008 3:39 PM Rod Scott Rod Scott  says:
Could Mr Ramsey identify the Section of the Sarbanes-Oxley Act which requires 'mark to market'? Reply
Oct 2, 2008 5:56 PM Sumner Blount Sumner Blount  says:
here is a link to the actual text of SOX:http://fl1.findlaw.com/news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdfthe word "mark" does not appear in the regulation. But, I haven't analyzed it in detail on this issue. Reply
Oct 2, 2008 6:16 PM rs weller rs weller  says:
Why does the national media hate rich people and top down economics. I agree without wealthy Americans reinvesting their money there is no economic growth. Reply
Oct 2, 2008 7:09 PM PW Nalbandian PW Nalbandian  says:
We are presupposing that the best and most efficient way to approach the problem is top-down, which is to say give the wealthy millions and eventually the rest of us may see hundreds or even, if we are fortunate, thousands. Has anyone considered a bottom-up approach that bypasses Wall Street in favor of individuals and small business? Maybe we should be taking this opportunity to ask some fundamental questions, like "do we really need Wall Street?" and "does the world cease to be if AIG and Merrill, Lynch go dark?". We need view this thing from a variety of perspectives including those of the persons who actually produce products and perform services. My own perspective is that of an IT professional who holds an MBA and has been unemployed since June. Reply
Oct 9, 2008 8:33 AM Kristina Woolfson Kristina Woolfson  says:
I agree we should be looking at a bottom down approach. It certainly wouldn't cost the 700 billion and if we gave each american over the age of 18 a certain amount of money it would definitely boost the economy. I for one would pay off debt which in turn goes to the banks. Why bail out big business when we can bail out the common person who in turn will give money to boost the economy. In the end everyone wins. Reply
Oct 9, 2008 11:00 AM Russ Russ  says:
Facts are a terrible thing to waste. Sarbanes Oxley does not establish accounting rules. Only the SEC and the FASB can do that. FASB issued Statement 157 in 2006 that is the rules governing mark-to-market. I challenge anyone other than the author to read it and understand it but it is clearly at the heart of the "size" of the problem but accounting gymnastics don't create liquidity problems which we clearly have.Also, why does everyone claim that the gov't is "bailing out" businesses when in fact they are actually bailing out the DEBT HOLDERS (not stockholders) of those businesses. If the companies went under, the debt holders would be left argunig for years over the assets. Those debtholders are mostly taxpayers who have bonds in their investment portfolios. Ask a shareholder of FAnnie Mae if they feel bailed out - a year ago their stock was worth $60 billion and today it is $2 billion - not much of a bail out from a stockholders perspective. Reply

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