The other day I proposed a seemingly simple plan for addressing the mortgage and financial crises: have the government pay the mortgages of those who go into default -- and assume commensurate ownership in the real estate.
I had a chance to poke around and look at some quick numbers. For the 12 months through January 2009, there were an average of 247,913 foreclosures in the United States, or about 3 million for the year. If you figure that each monthly mortgage payment is $1,700 (the national median), the government would have to shell out $5 billion per month -- $60 billion per year, or roughly 10% of our annual defense budget -- to pay all those mortgages. That's a lot of money -- except in today's context. AIG alone, for example, has received government commitments of $160 billion to keep it afloat. And (though there would inevitably be losses due to bubble-priced real estate that will not regain its value for decades) the government will be gaining equity in all these properties and in some cases will make profits, so it will recoup a large percentage of these billions.
A letter writer in the March 5 Washington Post, one Edward Y. Carp, points out another benefit that this plan would have: it would help bolster real estate values by keeping foreclosed properties from flooding the market and driving down prices.
The day after I made this post, the Obama Administration announced a foreclosure plan. I haven't looked at it closely yet, but instead of my plan or something similarly clean, simple and effective, it appears that the administration has pursued the path described so well by Michael Lind here: opting for complex, inefficient private-sector rube goldberg mechanisms instead of simple, direct government provision of public services. I call this Democratic "deep wimpiness" -- wimpiness that runs deep into the intellectual orientation of the party, as opposed to shallower tactical wimpiness of, say, (pre-compromising on legislation when one holds all the cards).
Okay I realize the chance is good there is some huge looming practical problem with this plan that some expert could point out to me in 2 seconds, but right now this or perhaps some suitably modified plan along these lines, seems a helluva lot better than what they're doing now.
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