Tuesday, February 10, 2009
With this headline that just flashed across my screen --
-- it's become clear that, if the U.S. government really wants to solve the current economic crisis, they ought to just do what John S. suggested a while ago in the comments section of yesterday's post titled "Ten trillion dollars dollars to save the world":
Wouldn't it be cheaper to just simply pay off every mortgage in America? Then all those mortgage backed funky financial instruments would become sound. And relieving everyone of their mortgage payments means we can restart the the consumption bubble.Not a bad idea - removing the uncertainty about souring Alt-A loans and the next wave of foreclosures would stop home prices from falling immediately.
In fact, since many of the problems with derivatives these days involve insuring mortgage debt that is either going bad or about to go bad, paying off everyone's mortgage would make a big chunk of the derivative mess just disappear.
AIG could be back in business insuring all the stuff they used to insure before they took a header into the mortgage backed securities business.
With today's potential $3 trillion addition to the previous $8 trillion in purchases, guarantees, and sundry bailouts (give or take a trillion or two), you could pay off every mortgage in the U.S. and we could start all over again!
Of course, this would probably favor the rich since they have bigger mortgages.
And renters would have to be compensated in some way.
Commercial real estate would still be in trouble until spending starts up again.
It would set a horrible precedent, but, who cares - fighting fires, water damage, etc.
It would hurt the bankers, since no one would be servicing mortgage debt for a while.
Other than that (and probably about a hundred more), it sounds like a plan!