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"Rescue the economy from the bottom up" is the theme of an opinion piece in today's Washington Post by Jonathan G.S. Koppell and William N. Goetzmann:

The theory underlying the bailout plan stalled in Congress is that rescuing the finance industry will restore market stability and that the benefits will eventually trickle down to average Americans. Thus, solving the subprime mortgage crisis has morphed into a much larger challenge: reassembling the architecture of the financial markets, which seemingly requires giving the Treasury secretary nearly a trillion dollars and extraordinary latitude to pick winners and losers.

There is an easier and more politically palatable fix: Pay off all the delinquent mortgages.

Edited to reflect concerns from the comments:

Implementation could follow the example of the Home Owners' Loan Corp., which in the 1930s issued new mortgages to a quarter of American homeowners. The government could offer to

refinance all mortgages issued in the past five years with a fixed-rate, 30-year mortgage at 6 percent. No credit scores, no questions asked; just pay off the principal of the existing mortgage with a government check. If monthly payments are still too high, homeowners could reduce their indebtedness in exchange for a share of the future price appreciation of the house.

That is, the government would take an ownership interest in the house just as it would take an ownership interest in the financial institutions that would be bailed out under the Treasury's plan.

THIS is what politicians have forgotten: Wall Street is NOT the economy.

I know it's important. I know finance must flow. I know that a temporary, immediate, fix of some sort is necessary -- now.

You want to fix the American Economy? Then fix the People's Economy.

Fix the People's real mortgages, not Wall Street's fictional mortgage-backed securities.

If the government did this, all the complex derivatives based on these mortgages would be as good as U.S. Treasuries. Their fair value would jump to 100 cents on the dollar, rescuing teetering financial institutions. The credit markets would be resuscitated overnight. Foreclosures would stop.

CONGRESS: THIS is why the People revolted; We understand intutively that the failed Bailout Bill will not help Us.

Read the whole piece in the Post. THIS is the plan to adopt.

Originally posted to Jimdotz on Wed Oct 01, 2008 at 04:04 AM PDT.

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