An Alternate to a “Bailout”?

The House is going to vote on the doubly revised bailout bill soon.  What I keep hearing from the prospective “no” vote legislators is that there are better ways to solve the problem, that we shouldn’t be throwing $700 billion dollars at the problem.  However, all we’ve heard about possible changes has been minor details, adjust this, modify that to pander to the marginal no voters.

Let’s get to the basics.  There are two main problems that need to be addressed: 1) business credit, and 2) home mortgages.  To provide the credit needed for business we must find a way to supply the funds needed to the business borrowers without feeding huge profits to the banks and other institutions that were the primary cause of the problem. Maybe nationalizing these businesses is necessary, but I would rather see a different solution, other than simply keeping them afloat.

As far as mortgages go, we need to differentiate between borrowers who need a little help because they can’t quite make it, and those who are living in a home they can’t begin to afford, and were just gambling on home prices.  The latter group needs to be allowed to lose their gamble, and walk away from their mistake.  While they lose their home, they should not be on the hook for the shortfall.  The banks that made the loan, or the institutions that bought the paper should take the hit.

I have been wondering why lenders have been so eager to foreclose, rather than renegotiate.  It turns out that the fees collected in a foreclosure make that a more profitable than adjusting loan terms.  Perhaps that problem can be addressed directly.

Although it was not on my list of critical problems, there are the executives and managers that knowingly continued their irresponsible programs long after it was apparent it was leading to disaster.  They should be dealt with severely.  Since I am recommending that we let their companies fail, these people should lose their job, severance pay, and bonus.  That money is needed more elsewhere.

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