Friday, September 19, 2008

Bailout Home Owners Not Failing Corporations

There’s talk of the taxpayers being put on the hook in the form of a federal bailout for the massive debt brought about home mortgage crisis. Why are Republicans always willing to throw billions of taxpayer dollars at a failing bank or corporation but not a penny for main street America when we are in trouble?

Republicans bitch and whine about being regulated and no bailouts but then easily become corporate whores the moment Wall Street calls for help. But what about the homeowner and the working families facing more dire and personal financial collapse?

Some estimates say the bailout could cost as much as half a trillion. But no one really knows the total cost. Most of this money would apparently be used to buy up bad mortgages and bailout banks and other corporate entities that hold the debt. One problem with such a plan is no one really knows how much debt there is out there. So you could be on the hook as taxpayers for a undetermined amount of money into the foreseeable future. There goes the money for health care I guess. Maybe that's the real plan these sleaze bags have up their sleeves?

It’s important to remember that the last time such a scheme was used was in the 1980's in the form of the RTC used during the Savings and Loan crisis . The total cost was about $394 billion. The half a trillion estimated bailout amount of this crisis makes the S&L crisis pail in comparison. Two prominent economists contend that the Treasury Secretary Paulson plan is aimed at the wrong end of the problem. The massive debt relief should be given to homeowners not failing companies.

Robert Reich, the former Secretary of Labor, thinks that Wall Street companies should be allowed to go bankrupt under a form of special bankruptcy specially aimed at the current crisis. This would help keep taxpayer directly off the hook for those company's debts. He then proposes more financial help for actual people who are in trouble and facing foreclosure. Help in the form of unemployment insurance, health insurance and assurances that they will not lose their pension or savings due to a stock market meltdown. Finally Reich proposes a more comprehensive way for them to reorganize their mortgage debt with the help of the government.

Dr. Nouriel Roubini, the New York University economics professor who has been predicting the current financial crisis for some time has a more comprehensive proposal on how to handle the crisis. It is aimed more directly at helping homeowners in trouble rather then bailing out failing banks and insurance companies. It is more along the lines of the depression era Home Owners Loan Corporation (HOLC). During the Great Depression the Home Owners' Loan Corporation was create to buy mortgages from banks at a discount price, reduce further the face value of such mortgages and refinance distressed homeowners into new mortgages with lower face value and lower fixed rate mortgage rates.

This massive program allowed millions of households to avoid losing their homes and ending up in foreclosure. Basically Roubini believes that this type of program would not cost as much as the massive bail out idea aimed at Wall Street. Also it attacks the problem at the source before banks go bankrupt because they are holding debt. It does this by addressing the mortgage debt at the homeowner level rather then buying up a bank that has failed because it holds numerous bad mortgages.

Ultimately a comprehensive plan aimed at homeowners will relieve not only their personal mortgage crisis but reduce the bad debts being held by banks that has caused the crisis on Wall Street and made capital difficult to access.

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