This is what I think the government should do about the current financial crisis instead of spending 700 billion dollars to buy bad loans from poorly managed mortgage companies:
- Give every taxpaying, mortgage paying homeowner $3000. Only instead of sending the taxpayers a check directly, send the money to their mortgage company to pay down principal on their home loan.
- Just in the name of fairness, give taxpayers who don’t owe a mortgage a $1500 check that they can spend however they want.
- Anyone who has recently defaulted on a loan won’t receive any money. Instead, the company that holds the defaulted loan will get $3000 to help pay down their losses.
This way the taxpayers who are funding the bailout will receive the primary benefit because their mortgage debts will go down. This will also make it less likely for them to default on their loans because they won’t be quite so far underwater, and if they do default on their loan the bank won’t lose quite so much money. Also, the banks will receive hundreds of billions of dollars in immediate cash which will help their liquidity position, and those banks that hold a lot of defaulted loans will get money to offset some of their losses. Finally, people who don’t have a home loan will have cash in hand which they will probably spend fairly quickly thereby boosting the economy.
In the end, this won’t really make taxpayers any richer, because they will eventually have to finance their own payout through taxes. However, at least it could potentially avert this whole crisis in a reasonably fair manner rather than paying a bunch of money to the companies that got us in this mess in the first place.
