"If you are neutral in situations of injustice, you have chosen the side of the oppressor. If an elephant has its foot on the tail of a mouse and you say that you are neutral, the mouse will not appreciate your neutrality." --Bishop Desmond Tutu

Friday, October 03, 2008

The "Trickle-Up" baliout

Two economists at Yale, Jonathan G.S. Koppell and William N. Goetzmann, are arguing against the baliout bill as proposed by Congress. They believe it will be ineffectual and waste billions of taxpayer dollars. Instead, they argue for a "trickle-up" baliout.

There is an easier and more politically palatable fix [than the proposed baliout plan before Congress]: Pay off all the delinquent mortgages.

The financial crisis is a liquidity crisis, yes, but it is ultimately a product of homeowner failures to pay. Unless this fundamental problem is fixed, we will continue to see -- and need to treat -- the symptoms. The proposed bailout ignores this. Yet the sum being demanded from taxpayers is almost certainly more than sufficient to pay off all currently delinquent mortgages.

They conclude
This solution would start by helping ordinary Americans and would quickly spill over to revive the financial markets. Directly addressing the underlying cause of the crisis would help ensure that we would not be facing the same crisis again down the road. While Wall Street has only recently felt the bite of foreclosures and delinquencies, communities across the nation will face greater financial and social fallout if the foreclosure crisis continues.
Makes sense to me. Tackle the root of the problem by propping up the foundations of the underlying "toxic" securities. And save people's homes from foreclosure.

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