Well here we are, the bailout as written has failed in the house.
So now the house Democratic leadership has to choose, they either try to put more band-aids on the current package or they start over.
The House republican leadership can try to break some more arms or join with the Democrats in a do over, but there are other options.
Come inside for a different take on what to do.
Certainly not the only problem, but a big piece of the mess is the continuing foreclosures from the sub-prime mortgage scandal. If you follow the money, the derivatives market that repackaged these junk loans and then covered their behinds with junk insurance is the direct connection between Wall Street and Main Street.
My proposal is not new it has been diaried here and parts of it were actually implemented by FDR when he faced a similar challenge when he came into office.
- Stop the foreclosures now. Do this by establishing means based payment schedules for any and all owner occupied single family homes and freezing any other proceedings against the homeowners.
- Prioritize a court supervised process of renegotiating the junk mortgages into reasonable fixed rate loans with the house valued at the current market. Preferably by private banks, but directly from the Federal government if necessary. Their are a lot of mortgages so this is going to take some time, but step one gives us the time. For those homeowners who just can't qualify for a new loan even under the new terms, allow them to stay as renters at a means adjusted rate until the house can be sold to a new owner occupier. Real Estate speculators are not eligible to purchase any of these distressed properties.
- Congress should before adjournment repeal all of the deregulation bills from 1999, 1982, 1977... that got us into this mess. Commercial Banks should be banks Investment Banks should be what they are high risk enterprises we don't need hybrids.
- Take the short term profit motive out of the home loan business. When banks buy loans from one another the usual practice is to add a clause to the deal that seller is required to buy back the loan if it is non performing or not as represented. Mortgage brokers on the other hand get payed a commission on the generation of loans, there is no down side to stretching the truth to get a borrower qualified or writing a loan to an individual that is clearly not going to be able to pay the loan back. The fix here is easy, if the homeowner defaults on the loan in the first 7 years then the mortgage broker must repay their commission to the current owner of the mortgage.
Not only does stopping the mortgage meltdown help Main Street, it also helps Wall Street because it increases the actual value of the junk paper derivatives that are at the heart of the Wall Street mess.
- Establish whatever kind of interbank loan guaranties that are necessary to restore trust between Commercial Banks to maintain a free flow of credit. This could be a pool like the FDIC or an out right guaranty from the Federal Treasury.