I basically stand by what I wrote back in June. Don't give away taxpayer money to the reckless. Instead, help lenders and borrowers meet their mutual obligations.
I worry that the initial proposal doesn't do anything for borrowers facing foreclosure. That's the root of the problem here - borrower default and foreclosure. I wouldn't be surprised if this Administration assisted banks at the expense of borrowers and taxpayers. They are supply-siders, and the essence of supply-side economic theory is the false belief that what is good for Wall Street is good for Main Street. Just as tax policy should increase the spending power of the consumers that drive the economy, any solution to this crisis should minimize future foreclosures as much as reasonably possible.
The solutions that I proposed, voluntary renegotiation of mortgages and personal loans to cover negative equity, would go a long way to breaking the credit crunch and housing market stagnation. Banks could take more confidence in borrowers' ability to pay the renegotiated notes. Borrowers in upside-down homes could finally sell, spurring the market, and banks would receive loan payoffs that could serve as capital for lending to the new purchasers.
Finally, too many executives have escaped any accountability. Former executives are probably untouchable unless they committed fraud, but new regulations should allow the federal government to seek penalties from future executives of businesses that eventually must be bailed out.
I worry that the initial proposal doesn't do anything for borrowers facing foreclosure. That's the root of the problem here - borrower default and foreclosure. I wouldn't be surprised if this Administration assisted banks at the expense of borrowers and taxpayers. They are supply-siders, and the essence of supply-side economic theory is the false belief that what is good for Wall Street is good for Main Street. Just as tax policy should increase the spending power of the consumers that drive the economy, any solution to this crisis should minimize future foreclosures as much as reasonably possible.
The solutions that I proposed, voluntary renegotiation of mortgages and personal loans to cover negative equity, would go a long way to breaking the credit crunch and housing market stagnation. Banks could take more confidence in borrowers' ability to pay the renegotiated notes. Borrowers in upside-down homes could finally sell, spurring the market, and banks would receive loan payoffs that could serve as capital for lending to the new purchasers.
Finally, too many executives have escaped any accountability. Former executives are probably untouchable unless they committed fraud, but new regulations should allow the federal government to seek penalties from future executives of businesses that eventually must be bailed out.
1 comment:
I'm no economist or finance expert, but another idea I have is for the government to somehow forgive a portion of the difference between the remaining principal balance and the market value of the home.
You would have to set it up in a way that would avoid abuse.
One way to do it may be to match the loan forgiveness by the bank up to a certain percentage and allow the bank to determine whether the borrower is a good case for forgiveness (the bank would have an interest in getting more than the house would sell for in the foreclosure process). This would also force the banks to accept some of the responsibility for the bad mortgage.
Or you could just forgive up to something like 50% of the difference and/or limit it to homes that sell for close to the current appraisal.
This sort of plan would simultaneously provide direct assistance to struggling homeowners, slow the wave of foreclosures, spark the housing market, and infuse capital into the economy.
Encouraging buying and selling of homes is especially helpful because one of the root problems right now is simply the uncertainty about home values caused by the stagnating market and high foreclosure rates.
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