Written September 28th, 2008 U.S. Congress

Posted by Eric Solis on December 15, 2009 under Public Policy |

Debt Elimination Credit Vouchers (“DECV) Under DECV the government would issue vouchers to every man woman and child for purposes of eliminating debt.  These credit vouchers would be in the form of a government loan and would be used as cash for the exclusive purpose of paying off debt. DECV vouchers are an actual dollar amount equal to the average amount of consumer debt owed per US household. Under this plan the DECV voucher can only be used to pay off consumer debt, college loans or a mortgage etc. If one does not have consumer debt, then the DECV can be used to fund an IRA, HSA or other long term savings need.  DECV is structured as a government loan paid back over 10, 20, 30 or 40 years.DECV infuses cash into banks through the repayment of all consumer debt. But it will go through the hands of the tax payers who under any rescue plan will be footing the bill. DECV kills two birds with one stone as DECV vouchers will use tax payer money for their direct benefit by way of substantially reducing or eliminating Americans consumer debt. Banks will become a scaled down version of their former self, because the usury rates charged on consumer loans by banks will be paid off and no longer produce outsized revenue to the banking industry. The problem with infusing banks on the back end is that it keeps this massive consumer debt overhang in tact, which is at the core of the financial crisis. 

By refinancing consumer debt, which can be as high as 36%, with long term government debt of 2%, we would free up as much as $150 billion net (est.) per year for every trillion of DECV issued. Under DECV the vacuum of wealth created by consumer debt would be eliminated and the aggregate interest charge to our country would be reduced in proportion to the net spread between consumer debt and government debt. Under the current plan all this money goes into the banking industry’s coffers.

This plan will relieve (not eliminate) pressure on the housing market and unclog the credit markets and derivatives tied to it (i.e. CDS, CDO, CMO etc.) because consumers will be more credit worthy at large. More consumers will be able to make their house payment since they will not be burden with consumer debt. Banks will get the much needed cash infusion and people who carried no debt will have a lump sum to sock away for retirement rewarding good financial management. DECV democratizes the bailout to inure to the benefit of all Americans as apposed to consolidating the benefit to a few.The Treasury and the Government will know exactly how much DECV will cost upfront in contrast to the open ended liability of the planned RTC2. According to the Federal Reserve Statistics Release on Consumer Credit dated July, 2008 revolving consumer debt is 3.5 trillion dollars. The demand for government securities is at an all time high while the securities backed by consumer debt are toxic.

DECV takes the toxic assets off the balance sheet of the banks, as prescribed by Treasury, the Fed and the Administration, but it does so through the hands of those footing the bill…the American tax payer.