September 19, 2008


Sam Smith, Progressive Review - Barely a word of succor or solace, let alone any solutions, have been offered by the experts, media or candidates in either party on behalf of the most important victims of the fiscal crisis: ordinary citizens.

The silence has been stunning as those on top grapple with several decades of fiscal mismanagement, fraud, carelessness, greed and disarray. We have corporate gamblers bailed out, reckless companies loaned huge sums, avaricious banks saved, but no one seems to care about folks who bought houses they no longer can afford, communities which will now have to pay to help support them and states that will no longer receive their property taxes.

To get an idea of what is not being discussed, here is an exploratory calculation involving a quite different approach, one based on assuming that the first people to save are homeowners rather than their predatory lenders. The approach is shared equity, which the Review has pushed for some time. It involves the government being a passive equity partner with certain classes of homeowners, such as neophyte purchasers. But it could also be used in cases of pending foreclosures. And it would work well in the present crisis.

It has been estimated that there are up to a trillion dollars worth of bad loans. We don't know whether this is true or whether the government is deliberately hyping the crisis so it can do what it wishes. We further can't be sure that the home loans are as a big a factor in the crisis as the government claims. They may be being used to cover up fraud and rampant speculation. But let's accept the figure.

On second thought, let's not. After all, the trillion dollars represents the sum of the bad loans, not the amount that homeowners are unable to pay. If you're bailing out banks and other lenders you have to cover the whole loan. But if you are making it possible for homeowners to keep their property by just lowering the amount of their equity, the sum could be dramatically lower. Let's guess that $250 billion in shared equity would sufficiently lower the fiscal stress for homeowners so they could pay the rest of their loans without problems. That amounts to about three times what it has cost to bail out one failing insurance company, AIG.

Bingo. The banks have their money, the individuals have their homes, states have their property taxes, and communities don't have to worry about added social service costs for those losing their residences.

One more thing. The U.S. government has ownership in a large amount of real estate bought when prices were under stress. When these homes are sold five, ten, twenty years from now it is likely that they will be sold for a profit meaning that this bailout might ultimately bring money into the treasury.

Even if the shared equity decreased in value by thirty percent, the cost of bailing out tens of thousands of homeowners would be less than what has already been spent by the government on one corporation.

It's not a completely new idea. The government loaned Chrysler $1.2 billion and four years later had a profit of 300 million. It's hoping something similar will happen with AIG.

But of course, when you do it for real people it becomes socialism. And under the rules of the game as written by those who created this fiscal crisis, only large icons of the free market are allowed to benefit from socialism.

On the other hand, we may have reached the point where we're finally tired of the poor sportsmanship and are willing to send the predators to the bench. It certainly is long overdue.