I have a two sentence proposal for solving this "crisis", which I'm trying to get to someone with an audible voice. I've talked to people from across the spectrum, including staffers from Keith Ellison and Michelle Bachman’s office about it, and I’ve yet to hear anyone argue against or even disagree with it. It works by spending a small amount of money to remove uncertainty at the front end. Viz:
- The federal government takes over the mortgage payments of anyone that isn't paying them, in exchange for a lien on the property. (cost ~$2B/month)
- The federal government extracts an equivalent measure of pain from the various people that got us into this mess (Revenue: ~$2B/month)
Er...That's it. No $1T bailout required. Anyone that says otherwise is trying to rob you (and me). If the mortgages are guaranteed to be kept current by the government, then all the $45T worth of wall street gambling on them becomes moot.
Justification below the fold...
Justification:
On the ongoing expense, Given that there are ~1M mortgages likely to go into default over the next year,and that the average monthly payment to keep them current is ~$2000, we can see that all the problem mortgages could be kept current for ~$2B/month. The numbers may be off here but the magnitude is correct.
On the revenue, The details of of how to recoup the money can be argued about ad nauseam. The main thing is, it won't happen in the context of a trumped-up crisis. Everything from taxing financial execs who earn >$1M/year to taking equity in houses in exchange for tenancy, rent and/or community service could be on the table.
If part 1 is put in place immediately the meltdown won't happen. We can then all have fun watching the politicians argue about the concomitant ideological issues whilst thrashing out part 2.
Is the core of this problem really any more complicated than that? This isn't my field and I really want to know.