Wednesday, October 01, 2008

Here's A Crazy Idea: Bail Out People, Not Banks

I am loving the Washington Post's coverage of this crisis so far.
I think other people have proposed this solution too: The underlying problem with the banking system is all these bad securities based on mortgages that people can't pay off. So...instead of giving all this money to the bankers, why not have the federal government pay off the bad mortgages?

In the 1930s, the Home Owners Loan Corp. reissued mortgages to one-quarter of American homeowners.

A new HOLC could pay off these distressed mortgages and give people 30-year, fixed-rate, low-interest loans instead. So it's not like they're walking away from their obligations.

"Like the administration's proposal, this plan would result in the government owning assets. But these assets would be real estate, not complex derivatives whose true value would take weeks to discern. Homeowners would become partners with the government in resolving the crisis."

4 comments:

Anonymous said...

Recently an insurance company nearly wind up....

A bank is nearly bankrupt......


Who fault?


The top management of the Public listed company ( belong to "public" ) salary should be tied a portion of it to the shares price ( IPO or ave 5 years ).... so when the shares price drop, it don't just penalise the investors, but those who don't take care of the company.....If this rule is pass on, without any need of further regulation, all industries ( as long as it is public listed ) will be self regulated......


Sign a petition to your favourite president candidate, congress member again and ask for their views to comment on this, and what regulations they are going to raise for implementation.....If you agree on my point, please share with many people as possible....


http://remindmyselfinstock.blogspot.com/

kg79 said...

isn't that what Fannie and Freddie were doing? see how it worked out for them... basically you'd either have to heavily subsidize the the interest on these mortgages, or offer the same loan shark like rates... much of the problem is people occupying homes their income can't support, which makes them a default risk... also, the issue is that you can't a-priori identify the homes that will default and therefore would have to subsidize everyone... buying wallstreet's toxic paper would be much cheaper in the long run...

T Paine said...

gotta love socialism.

heads I win tails you lose.

Graham said...

t paine wrote:
"gotta love socialism.

heads I win tails you lose."

This is the fault of socialism? I think we're in this mess because if laissez faire capitalism. The problem we are in is the exact opposite of socialism. The solution (or proposed solution) is actually socialism.

So in this case one could say capitalism failed and socialism is riding to the rescue in the form of publicly funded bailouts. However, I think the problem is too big for an already deeply in debt government to solve.