Wednesday, September 24, 2008

A solution to the mortgage crisis I like.

Instead of bailing out the big finance companies and banks, bail out the individual homeowners.

[I]nstead 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.

Hat tip Instapundit.


Laura Back said...

I'm largely in agreement, but if we're bailing out homeowners who took out risky loans, I'd also like to do something for people who are still renting because they played it safe, and also for those for whom home ownership is still farther out of reach.

Granted, the money doesn't go as far if one is including have-nots as well as have-not-enoughs, but I can't wrap my mind around a claim that people who already have mortgages are particularly deserving of getting to stay in homes that other people still can't afford.

Kai Jones said...

At the link the author suggests:

Some type of relief should be thrown in for renters (who also pay taxes!), for equity purposes -- perhaps the long-overdue reform many have proposed of allowing renters to fully deduct rent payments from federal taxes -- maybe even an immediate cash credit to renters to further boost the economy and match the immediate cash relief to mortgaged homeowners.