If there's no $700 Billion Bailout, What's Going to Happen?

Congress today demonstrated wisdom and courage, defending themselves against the panic attack of Paulson and not going along with his bill. But what happens next? Will the Senate approve the bill as is, or work up something they can offer the House that is more palatable?

In any event, I think the $700 Billion Bailout is DOA. So what's going to happen?

1. Congress will craft a bill they can live with that will rescue the banks from the little guy up, starting with a stay on all foreclosures until a new FHA mortgage plan can be created, some form of subsidized mortgage that can pull people out of foreclosure. I humbly suggest a new FHA mortgage plan I like to call the Salvage Mortgage. People in foreclosure can apply with FHA and get a new, covers all costs, mortgage that takes them out of foreclosure, and gives them a subsidized, fixed rate, 30 yr. mortgage at one half the prevailing 30 yr. T Bill rate. Estimates are that only $65 Billion in mortgages are in foreclosure. Rescuing all of them would only cost the annual subsidy amount of roughly 3 percent a year, or about $2 Billion a year, a far cry from $700 Billion. In exchange for this new subsidized mortgage, the homeowner would give up one half of their equity increase upon sale or refinancing, or the subsidized interest, whichever is higher, so in the end, the government will be repaid in full, or even make a profit while helping. Who would be eligible for this one time mortgage fix on primary residences? Hardship cases, including all those with adjustable rate mortgages that have become too much for them. But, at the same time, forbid clauses in adjustable rate mortgages that carry a large refinancing penalty, so that the lender doesn't get such a penalty and benefit from this mortgage program.

2 Also in this bill, Congress will include a clause that eliminates the current requirement to mark to market these toxic assets, which, though they are currently at only 85% default rate, are valued at zero because no one will buy them. Congressman DeFazio of Oregon has already suggested this, a brilliant suggestion that frees up huge amounts of capital, all for free.

Under such a plan, Main St. is out of foreclosure, no one is losing their home, banks are restored to full liquidity and all at a cost under $2 Billion a year.

Let's help Main St, and let Wall St. benefit, not bail out Wall St. and hope it benefits Main St.

I am fully confident that Congress will create a sensible plan like this, and if they do, the US economy should come roaring back.

However, if Paulson's panic attack succeeds, then all bets are off. We're headed for massive inflation and a near collapse of the US currency.

Which will happen? It's up to Congress. Hold physical gold and silver for now, consider getting a safe in your house, (Equipmentland.com sells fire resistant gun safes at nearly half of retail, delivered to your home). Store food, medicines, water, and if you are so inclined, you have the right to own weapons and defend your home, God Bless America and the 2nd Amendment.

Let's hope that Congress passes a sensible bill that bails out Main St. If they do, put your bets down on a bull market in the US for the next five years, minimum. If not, sell your gold and silver after they go up to $3,000 an oz. for gold, and at least $60 for silver.

Let's hope they don't!