More detailed thoughts to come, but for now, why can’t we do this with the $700 billion:
Instead of paying for worthless assets and essentially giving Wall Street free money while doing nothing about the underlying problem, give a tax rebate - a big one - to everyone making under, say $125k (giving over $2 grand - with extras for families with kids - to every household making under that threshold would be doable within a $700 billion dollar budget). The caveat to this second stimulus is that it MUST be allocated to exclusively to debt: first to subprime mortgage debt if you have it, then to standard mortgage debt, then to other debt. If you have no debt, you get a check. This way the money directly helps the very “Main Street” homeowners who are struggling, but also pretty much directly benefits Wall Street as well by making the subprime contracts they have worth a bit more. It wouldn’t be a total bailout, but it would get the economy moving on more than one cylinder. It would also avoid any moral issues - it wouldn’t unduly help the evil (really, more stupid than evil) Wall Street execs, and it would give a nice cash bonus to those who didn’t take on debts they couldn’t pay. I suppose it would be logistically difficult, but is there any other reason it won’t work?
The suggestion above comes back to the main problem with this “Wall Street meltdown” coverage. Wall Street did highly unethical things and had the main hand in making this crisis happen, but that is only because they encouraged sales of onerous loans to the very people who couldn’t afford them. Now, the main issue is that fact that people aren’t paying their debts - thats why subprime contracts are worthless. Shouldn’t the solution specifically address that problem? And prevent those debts from bankrupting by putting a moratorium on foreclosures? Why do the banks need more money? So the stock market does better? Wasn’t prioritizing top down concerns about markets and Wall Street at the expense of concerns about every day people being able to pay what they owe the exact thing that got us into this?
2 responses so far ↓
1 t // Sep 25, 2008 at 12:48 am
I agree in principle with most of what you say, but given my recent exposure to bad debt I’ll give a shot at telling you why you’re wrong.
If you put a moratorium on foreclosures, people will immediately stop paying the mortgage. If you say cars can’t be repossessed they won’t pay that bill. The threat of foreclosure keeps people working overtime and second jobs.
Then there’s enforceability of your rebate plan…It might be semi-feasible to force people to apply the cash first to mortgages, though it would be challenging at best (would the IRS pay the lenders directly? or would we really trust subprime debtors to handle it themselves?) There’s no way you could make them apply leftover money to other debt without getting into a really complex system of requirements that would probably end up being voluntary.
Also, it’s not totally accurate to say flatly that people aren’t paying their debts. They just aren’t paying them as quickly. Bush might not be totally off in saying that we’ll get a lot of the bailout money back. I suppose we’d need to set up some kind of Federal Collections Bureau to hound the deadbeats into paying, garnish their wages, etc. And we could pass some laws extending the statutes of limitation on how long you can collect on debt. It would be a fitting final Bush legacy.
And then, I’d also defend the defense of the stock market. Sort of. It’s a natural outgrowth of the demise of social security. We “Millenials” won’t have any…and until that situation changes (which I’d rather it did) I think it’s important that Big Gov’t step in and make sure our 401k’s will actually be worth something.
2 It's Their Fault // Sep 25, 2008 at 1:54 pm
All points well taken, except perhaps the last one about Wall Street. Most of the people affected by the criss don’t have a very large stake in Wall Street, for one, and second, to assume whatever crash happens now will ruin Millennial 401ks in 40 years is probably shortsighted… we are many booms and busts away from that. Yglesias makes a good point for how this crisis is bound to right itself eventually here, in which he also proposes a solution similar to mine - one day late, Matt! http://yglesias.thinkprogress.org/archives/2008/09/the_case_for_mortgage_rewrites.php
The Federal Collections Bureau / debt collector extension laws… hoping that’s a joke, but at the same time I see it as revealing flaws in my suggestion as those are the logical extensions.
CAP has a fairly similar plan in that it directly addresses revaluing distressed mortgages. Seems like it would also involve a lot of bureaucracy, but it is also aimed more specifically and comprehensively at sub-prime mortgages and it shows signs of turning a profit much more quickly than other options: http://www.americanprogress.org/issues/2008/09/real_solutions.html
No $2 grand for me though, so not as fun.
The question remain though: will current subprime recipients pay restructured mortgages, even if they are much easier on the wallet?
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