Mr. President-elect, part 2

# 1 Issue, Energy Initiative     Becoming energy independent in 10 years should be the number one priority for a number of obvious reasons:  1) manufacturing jobs, 2) infrastructure jobs and construction, and 3) balance of payments savings.   

The much talked about Apollo project of the 1960’s in today’s dollars would require investment of 250 to 300 billion dollars over eight years.  A mix of tax incentives, loans guarantees, etc,  could set the basis for this initiative. # 2  Issue, FDIC’s  Plan 

            Sheila Bair’s Mortgage Restructuring  Idea to handle troubled mortgages is basically: a)        Lower loan principal to 90 percent of appraised valueb)        Extend maturity of loanc)         Lower fixed rates 

Our take is that except for lowering the principal value, the plan is ok.  People should not be rewarded for bad decisions.  If loans , interest plus back interest, can be rolled into 30 year mortgages with market interest rates that should be the extent of the help.  If based on 38 percent of their income they cannot meet the payments, then foreclose on them.  There cannot realistically be a test of loan to value on these loans as loan to value ratios may be 120 to 150 percent in some areas.  In all candor, based on the portfolio handed to the new president, if the mortgage holders have patience, inflation rates over the next twenty years will probably be what bails these mortgages out of the deep hole they dug. 

# 3 Issue, Detroit        A core manufacturing industry is essential for defense purposes and macro job preservation.  Probably half of Detroit’s capacity needs to be retooled for use in the Energy Initiative which will be key to the revival of the U.S..  The NYT article (see below) on the manufacturing facilities of the Maytag Corp in Iowa being retooled for the manufacturing of wind turbines would be a good start. This along with solar, and geothermal equipment would be a good use of workers and facilities.  Any loans to Detroit should include provisions to require them to retool for products this country needs.   

http://www.nytimes.com/2008/11/02/business/02wind.html?partner=permalink&exprod=permalink

  

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