Sunday, November 2, 2008

A Real Bailout

With a great deal of fanfare and soul searching, Congress decided to spend close to a trillion dollars to bail out banks, insurance companies, hedge funds (most of us, including myself, do not even know what those hedge funds do.) They should have been hesitant because that trillion dollars is not their money. Unfortunately, it is not ours either. The government will have to borrow it. And how do you go and get a loan of a trillion dollars at a times when credit has dried up?

In the midst of all this astronomical expenditure to bail out financial institutions, who worries about the homeowners who are losing their house to foreclosure? Yes, politicians worry about that but what are they doing about it? You guessed: not a lot.

One reason is that giving billions of dollars to one American Insurance Group (AIG) is a lot less paper work than giving $ 50,000 to millions of individual homeowners. The other reason is, of course that AIG has friends in high places and the poor family on your block who have had to leave their home because they could not pay their mortgage have no friends among bankers or politicians.

It is nevertheless clear what needs to be done. The government must—they should have done that more than a year ago—declare a moratorium on foreclosures. No more foreclosures, basta.

How would it work? Every city and town might appoint a number of boards to sit down with each homeowner who is unable to pay the mortgage and the institutions that gave the mortgage and work out a deal that keeps the family in their house. If some money is needed to complete that deal what better use of the 1 trillion dollars, appropriated by Congress? Keeping the families in their house, and mortgages—properly adjusted-- in play is good for families. It is good for neighborhoods and the whole city. It is good for the banks.

There would probably be other ways of working out the administrative details. What matters is the will to help ordinary citizens to remain in their homes.

Well, you say: it would be a bureaucratic nightmare. For sure, but having millions of hard working citizens kicked out of their house is not a nightmare? What sort of nightmare would we rather have—one for bureaucrats or one for people who see their belongings piled up on the sidewalk by the Sheriff's deputies and bailiffs?

There has been a lot of talk about change in this presidential campaign. How would this be for a departure from business as usual?