The U.S. House of Representatives sent D.C. and Wall Street into convulsions by refusing to pass the Bush bailout even with modifications negotiated by the Democratic leadership. (Perhaps there’s life in our republic yet.)
Trickle up economics, that’s what. Let’s keep our eyes on the ball here. The real foundation of the current mess is the deflation of housing prices that were propped up artifically in the bubble ignored and/or denied by the very experts in charge of the rejected so-called solution.
The air is still going out of home prices, although the rate of decline has slowed over the last three months. See the latest figures from Standard & Poor’s/Case-Schiller 20-city housing index released today.
If we want to stem the crisis and help Main Street, then the solution is obvious. Set up a government mechanism to review existing troubled mortgages and rework them so that the owners of the homes (provided they also live in them) can afford a new monthly mortgage payment. Those houses with troubled mortgages not occupied on a daily basis by their owners would be subject to much stricter reworking rules.
The government can also inject capital into troubled Wall Street businesses in return for a part ownership position and temporary management authority–the same way private investors operate. This gives taxpayers a real shot at a return on their tax-dollar investments future when the government sells its stake in the future.
This trickle-up approach immediately will help restore neighborhoods lost to the blight of foreclosure, and eventually stablize the finances of troubled investments banks and securities firms that bought into exotic and toxic investments backed by questionable mortgages.
That’s the way to proceed because it does not reward Wall Street for its greed and total failure to self-regulate.
Next Step: Undo degregulation with more nimble reregulation that is adapted for 21st century electronic exchanges. This can and has to be done to restore long-term worldwide confidence in the U.S. economy and markets.