OK, so this is wildly off-topic, but I can’t help myself. As a former government employee, it’s a wonder to me that we are willing to spend $700 billion on this bailout when we could skip the bailout and instead use the money to help people weather a financial crisis directly. That way, irresponsible lenders get punished and we don’t. Here’s how:
ALTERNATIVES TO THE BAILOUT:
1. If we don’t do the bailout, people won’t be able to get mortgages.
ALTERNATIVE: HUD, in partnership with local housing authorities and housing counseling agencies, is perfectly capable of issuing 30 year fixed-rate mortgages to families with downpayments and good credit histories. No downpayment? Bad credit? HUD has programs for that, too–and rental assistance with homeownership options built in! Fully fund these proven, effective programs that have excellent monitoring mechanisms built in. In other words, let the government make mortgages directly. Once the markets settle down, they could sell them to banks if they don’t want to hold them.
HUD can also refinance risky mortgages into 40-year fixed rate loans with subsidized interest rates and resale restrictions or shared equity provisions to prevent windfalls. In case of default, the homes could be converted to the existing project-based assistance program to be administered by the local housing authority so that family or another family can live in the home as a renter. Housing authorities can manage the property as they already do for public housing.
2. If we don’t do the bailout, small businesses won’t be able to borrow money.
ALTERNATIVE: The Small Business Administration. Same deal as above.
3. If we don’t do the bailout, people won’t be able to get car loans.
ALTERNATIVE: Let’s solve the energy crisis at the same time. Generous tax credits for people who swap gas guzzlers for energy-efficient vehicles, plus tax credits and other funding to improve public transportation and transportation alternatives like carpools and bike lanes. Lots of public transit systems could increase capacity & ridership with the right funding. People will find a way to get around.
4. If we don’t do the bailout, people won’t be able to get insurance.
ALTERNATIVE: FEMA or the states can issue disaster insurance as an insurer of last resort if insurance companies really can’t issue policies.
And–let’s solve the health insurance crisis by immediately opening Medicare and the Federal employees health plan up to every American. Use existing computerized income verification systems, already in use by housing authorities and welfare agencies, to verify income directly with the IRS, Social Security, etc. Set premiums at a sliding scale based on income as verified through these computer matching systems. People who don’t want this coverage don’t have to sign up for it.
People who would rather have private insurance are free to sign up for it–and Congress should pass a law requiring insurance companies to use the same underwriting standards for applicants who are getting coverage at work and applicants who are applying on their own. Applicants in employer pools do not have to fear having their coverage dropped when something bad happens, nor do they have to fill out a medical history to get insurance. This seems to be working for employer-funded health care, so do the same for the rest of us.
Finally–pass a law making these risky mortgages illegal and/or ineligible for any kind of bailout or resale on the secondary market. The bank that issues the bad loan has to live with it.
That’s my plan.