The housing market was overheated, the bubble has burst and now there is some natural cooling off of house prices. The resulting credit crunch seems to be a natural consequence and a necessary evil at the moment.
Do we really want to become economic serfs toiling away on the King’s estate for the rest of our lives? The price tag of $700 billion is too large and the solution to throw good money at bad is foolish. Why should we swap good tax money for toxic mortgage instruments loaded with foreclosure problems?
The current Bush/Paulson solution truly sounds worse than the problem, and may not be feasible, and may not work! The banking industry and the investment community need to slowdown and probably downsize their operations and do some soul-searching about becoming more risk averse and more cautious.
Perhaps we should open a Federal Savings & Loan temporarily to handle some new lending needs. But certainly we don’t want to pay ridiculous prices (cash for trash) to the reckless institutions that have been dealing in worthless securities, as if their past mistakes could be totally forgiven and condoned.
We need to support normal bankruptcy/mortgage reduction procedures for slightly overleveraged homeowners, and sort out how to deal with the totally toxic mortgage-backed securities carefully. First and foremost, we need to separate the foreclosures in the works that can be stopped and remedied by sensible changes to mortgage terms and by a reasonable adjustment of the principal down to the current estimated fair market value.
Owner-occupied single family home mortgages used to provide wonderful profits for the savings and loan industry. Workouts with the mortgage holders with solid income sources could keep many of the mortgage-backed securities from becoming toxic.
Then, we need to go to the meeting room with bi-partisan and non-partisan economic, banking, finance, and business thinkers and leaders and brainstorm various ways to use American tax money wisely, and only as a last resort. I am certain that are various sensible ideas on how to make the bailout limited and effective.
This brainstorming might take weeks rather than days, so what? Better to be safe, rather than sorry. Look before we leap. These simple maxims of our youth are well-worn and useful.
Speed right now is not a good idea. We have a lame duck administration rushing to find a solution to a complex problem. This problem is too serious to fix incorrectly.
The urge to pass the Paulson/Bush/Cheney Bailout Plan quickly, seems like a tactic to bamboozle us into handing over too much money and power to the current administration unadvisedly. As my dad always said, beware of "the bum’s rush."
We don’t need a many-month-long commission to investigate all the history of this financial crisis, but we certainly do need time, deliberative thought and discussion to figure out the best solution to this colossal mess.