Bryan Wildenthal has the best proposal I've seen yet for federal intervention in the ongoing mortgage crisis. If there must be intervention, why not use taxpayer money to bail out homeowners instead of investment banks?
So, instead of the massive moral hazard -- and general unseemliness -- of putting taxpayer money on the line to bail out Wall Street banks and brokers at the top end of the pyramid, why not aim at the broad BASE of the pyramid?
The money is there. I mean really, isn't it funny how when political leaders and powerful interests like Wall Street REALLY need cash, they somehow find a way to pull it out of the federal government's [ahem]?
To put it more politely: They just stick taxpayers with the bill. ...
America's population is about 300 million. Divide by 4 (typical household size) and you get maybe 75 million households. Even that doubtless overstates the number of owner-occupied homes covered by bank mortgages, with a value less than, say, $1 million or so (we should exclude the very wealthy -- if the $5 million La Jolla mansion is about to be foreclosed, I say tough luck -- John McCain, of course, would make $5 million the cutoff, having suggested that anyone under that is middle class -- whatever). And remember, you have to exclude the homeless, renters, nursing home residents, all the dependents who live in each mortgaged home, etc.
So, maybe 50 million owner-occupied homes, of middle-class or lower value, with mortgages? Close enough for government work.
Divide $1 trillion by 50 million and you get $20,000 -- not to be sneezed at! Over two years, that could cut almost $1,000 off every single monthly mortgage check in America! That amount of mortgage relief targeted directly at the millions of American taxpayers and homeowners of middle incomes and modest means would be an ENORMOUS shot in the arm to the economy (dwarfing the piddly recent "economic stimulus" checks). And it SHOULD mostly solve a crisis supposedly rooted in overextended mortgage lending, and securities built shakily on same.
I like the idea because I'm a homeowner/taxpayer that didn't borrow more than I could afford to pay. Why should I have to bail out idiots who lost their risky gambles without getting anything for myself? Plus, it makes more sense to feed the money into the bottom of the system rather than the top.