Society of the Pwned
This has been a great week for the ownership society. Not only do we all own an insurance company, but now we've got ourselves hundreds of billions in bad debt. I don't know what to do with it all first.
Kevin Drum writes the post I was about to write, about the other way you could have gone about righting the ship.
...if Uncle Sam can afford to spend a trillion bucks or so rescuing Wall Street, it would be nice if they could spend a trillion bucks shoring up all the poor saps losing their homes because they can't make the payments on those option ARMs they were talked into buying during the boom years. We could do it if we wanted to, and the risk wouldn't even be appreciably different from the Wall Street bailout. The feds would have to make distinctions (just as they will with overleveraged banks), and some homeowners would qualify for a rescue package while others wouldn't. The ones who qualified would get loan relief, which most of them would eventually make good on, in the form of restructured financing. People would be helped, the subprime crisis would get attacked at its roots, and although it would cost a lot of money up front, in the long term the price might end up being fairly modest (by present-day brobdingnagian standards, that is). Moral hazard is an issue, but no more than it is for the bank bailout.
That's exactly correct. If you stepped in to bail out homeowners and pay off their restated ARM rates, suddenly they would have more money to spend in retail. The "illiquid assets" that these banks were holding would suddenly have value. The market would go up across sectors because consumer-based businesses would see more robust growth. The economy would expand and the people would see the fruits of it instead of the bankers who mad bad bets in the first place. It may sound unfair, but I don't think anybody would compare it unfavorably to what we're seeing today.
There's a chance that this wouldn't work so smoothly, of course. But the real point is that it doesn't get considered. And that's because the new President and Vice President are the Treasury Secretary and the head of the Federal Reserve. They, like many economists, essentially view financial crises from the standpoint of the banks and the stock market, instead of those poor souls who put their hard-earned money into them. What's more, Paulson used to run Goldman Sachs, and even if he isn't collecting money in stocks from them, he has relationships with those who are.
There is no voice for taxpayers in a situation like this, and so nobody should be very surprised when taxpayers are left with all the burden at the end. The elites snap their fingers, shrug their shoulders and try again with the full backing of the federal treasury, and the workers see nothing but debt as far as the eye can see. This has been the reality in our country for all but only those few years after the Depression, after a global meltdown that could not be stopgapped. The big money boyz are a lot more sophisticated about protecting their own fiefdoms these days, but that doesn't mean they can survive forever. They went to the edge of the cliff this week, and this temporary reprieve doesn't mean they won't fall over.