Instead of giving $700 billion in taxpayer funds to Wall Street bazillionaires, how about a federal program to make loans available to homeowners who need help getting and staying current on their mortgage payments? The loans could be secured with a lien against the property due on sale, with no prepayment penalties, interest to accrue on outstanding balances. Participation in the program would be limited to a maximum of, say, two years (enough time to either sell, refinance or otherwise improve your financial situation), and of course only bona fide owner-occupants would be eligible.
This would address both the root cause of and the real human suffering that has resulted from, this crisis: people losing their homes through foreclosure. A federal intervention to help homeowners avoid defaulting on their mortgages would mean that the securities backed by these loans could again be bought and sold again freely in the capital markets. This would also decrease the pressure on all the trillions of dollars in credit default insurance that has been issued on these loans. The program would be temporary in nature, only remaining in place until the credit markets returned to a state of relative normality.
Of course, there would continue to be significant defaults, mostly due to the ineligibility of house flippers and speculators. That's OK. Some homeowners are in too far over their heads to be helped even by this program. That's OK. Those who took the biggest risks in all of this, should take the biggest losses. The continuing defaults in would remain a problem on Wall Street, but not a cataclysmic one.
The cost? By my rough estimates, it would be a fraction of the trillions being sought by Paulson and most of it would be very likely to be recouped sooner or later by the federal government, with interest. There are probably about $200-300 billion dollars worth of outstanding mortgages in some stage of arrears right now. If you take 1% of that as the average monthly payment (i.e. a $100,000 loan would at most have a $1,000 monthly payment), then you are talking about total payments of $2-3 billion a month, more than half of which would likely still be covered by the homeowners in question. At most we're talking about $20 billion a year, and the program shouldn't have to last more than 2-3 years.
Most importantly, however, the money would go to where it would actually make the most difference in terms of improving the lives of actual people. It could be argued that some homeowners might be getting a windfall compared to others who acted more prudently. But as a homeowner myself, I can't imagine feeling envy at another citizen who has a lien by the federal government against their house.
Thoughts?
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2 comments:
Contrary to what the main stream media says, wall street as a whole (capitalism) should not be blamed for the actions and policies set forth by OUR congress. There are, in fact, corrupt men in wall street who partnered with corrupt men in government to engineer a win-win situation at the expense of the taxpayer. Capitalism (and our nation or any nation) will only survive when the good and virtuous people are running it. Which means, come this November, you must vote for good men and women who stand by principle and uphold our constitution and not just give lip service to causes that seem noble and just.
I don't really know that good and virtuous people can "run" capitalism. As far as I understand it, capitalism is based on the "greed is good" philosophy of things, i.e. that self-interest will motivate people to work hard and create things of benefit to the rest of us. I would think that the best approach is to leave the capitalist system (Wall Street) to the greedy, and fill government with good and virtuous people with the power to establish rules such that the greed of capitalism works for our benefit, but doesn't wreck us in the process. That would require, first and foremost, separating the functioning of our democracy from the capitalist process, rather than having it subsumed by money, as is currently the case.
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