Jeff Smith's Stimulus Idea

We have currently a crisis of credit that will soon spin out of control. Most estimates seem to indicate we need $4 trillion in stimulus as opposed to $800 billion. We should simply take the $800 billion and put it up as a default reserve for lending institutions but tell them they won’t get any more direct cash infusions.
• Instead of spending, printing, or borrowing large sums of money, the government should instead guarantee bank loans (similar to the SBA program) to a preset credit demographic that will predictably have a 20% default rate. With the government guarantee, the race would be on to lend $4 trillion, which according to the default rate will cost the government $800 billion.
• Couple this with a preset profit margin for housing loans (new and refinanced) of 200 basis points (0.2%) above the government lending rate. With a government guarantee this profit margin would be more than adequate. We would see a mortgage rate under 3%. This would immediately free up credit for housing and start reducing foreclosures. Small business will get access to credit which will slow unemployment. Access to this much credit would increase consumer confidence and people would begin to buy cars and other durables and support the retail segment of our economy. Investors would become active again and start buying up assets before prices begin to increase to meet the new demand.
The freeing up of credit would fuel consumer confidence which would stimulate spending and investment. The resulting economic growth would cause foreign to flow to our economy, further stimulating economic growth. The first one out of the credit crisis will benefit the most and lead the rest of the world out.
We then would have an economic growth window that we should use responsibly to immediately pursue new energy technology. The export of this new technology will assure economic health of our great country.
This concept would not only increase the availability of credit but target it to the right sectors. Housing purchases would increase and foreclosures would drop as people could cut their mortgage payments nearly in half. Small business which provides 70% of the jobs would have access to credit lines to purchase services or inventories and rehire their employees. This would increase the discretionary income of people who would start purchasing and saving.
This is a much better plan than the Obama-Pelosi-Reid plan. Instead of borrowing money to give away to sectors of the economy that do not grow the economy or encourage the purchase of American-made goods and services, this plan is simpler, more workable, and more effective stimulus approach.