Bail Out the People

Congress should instruct the U.S. Treasury to issue to each American household a mortgage reduction voucher worth $7,500. There are about 100 million households in the U.S.A., so the total cost would be roughly the same as the proposed bailout of Wall Street investors and banks. Because these vouchers could be used only to pay off mortgages, these funds would greatly alleviate the current financial crisis which was caused by people being unable to make their payments. Thus, these vouchers will help the banks by helping the people, rather than hoping that by saving the banks the people will be bailed out. Think about it as trickling up, instead of down.

One may ask, why issue these vouchers to people who have no mortgage? For fairness' sake. Given that that the Congressional bailout is using tax payers' money, all tax payers should benefit from the program. People without mortgages could either use their vouchers as part of a down payment for a house--thus helping restore the housing market to good health and stopping the downward spiraling of the price of houses, one of the causes of the current crisis--or they could sell these vouchers to others who could use them to further reduce their mortgages. (That is, these vouchers should be tradable.)

Democrats should love these vouchers because they benefit all of us, and not primarily those who own shares in irresponsible banks or the banks' reckless management. Republicans should love these vouchers, as they are akin to the school vouchers libertarians have long favored on the grounds that such vouchers leave the choice to each individual. Indeed, people can use these vouchers to pressure their banks to renegotiate their mortgages and provide more favorable terms--lest they take their vouchers to another bank, get a better mortgage from it, and pay off the old, unfavorable one.

The main criticism against this idea will be that issuing such vouchers takes time, and the financial crisis is at the gate if not in the gate. However, like the 2008 stimulus checks, which were issued within a few weeks, mortgage reduction vouchers could be issued in a jiffy. Moreover, the firm knowledge that $750 billion dollars are about to be injected into the system is likely to suffice to keep afloat the financial institutions. And, if this sum is not large enough, instead of increasing the bailout to the banks, let's up the people's mortgage reduction vouchers.

Amitai Etzioni is a University Professor at The George Washington University, and the author of The Moral Dimension: Toward a New Economics. He can be reached at [e-mail].

Comments

[GiggidyGeshmoygen]

recommended reading >>>>>>>

SHOW US THE MONEY
by William Greider
The Nation --- September 24, 2008

Taxpayers should wake up the politicians and ask them to tell Wall Street: "We want the same deal Warren Buffett got." The Omaha billionaire announced he is playing White Knight to Goldman Sachs by investing $5 billion in the endangered investment house. What a big-hearted guy. Buffett is an old-fashioned capitalist who invests in companies for the long term and I am a big admirer. But Warren Buffett did not get to be a billionaire by committing public-spirited acts of charity. He plays to win.

But the taxpayers don't have any deal. They are the naked investors in this drama, asked to put up many billions to rescue Wall Street firms with nothing more than a vague promise it will save the Republic. I am reminded of the oldest rule in the financial business: "Get it in writing." ..........

read the entire article >>>>>>>

http://www.thenation.com/doc/20081006/greider3

[dontomas]

I am a liberal Dem but I do not like the voucher idea. The bailout if administred properly would get a good share of taxpayers money back through the sale of these homes. A voucher is just spent money forever with no guarantee thaat those who can not afford their home and are upside down with equity are going to walk. If you are paying $1200 per month on a home that you bought for $200,000 and its now worth $150,000 you are going to bail if you have no equity and the payments are taking more than half of your income. I think its all about waiting out these foreclosures until a sound real estate market returns. There were so many people who made a fortune in the last few years by selling their home and doing a major downsize to an apartment or condo living free and clear of mortgage debt should they get a voucher also?

[Scottyw]

Stop the money flow to Washington. Give The money of the people to the people.

[PT6]

Interesting Fact!

Yes we need to TURN OFF THE FAUCET on New Mortgages going Bad and people losing their homes! These people were USED to fill up Derivatives with Mortgages!

The DEMOS want only $150 Billion and to stage this! That is BETTER!

I hope it is staged so we can see how it operates, but we need BANK EQUITY for CASH from China!

[RotoRooter]

This is straight out of economics 110. Give it to the rich (banks) and they will hoard it. Maybe, just maybe, it will stave off some catastrophe, but thats all that will happen. Give it to the poor (people) and they will spend every last penny, and it will be spent again and again before it is finally "hoarded." Its possible that inflation would go wild, but economic activity would increase exponentially. Printing 700 million for any reason is going to push inflation, so why get some bang for all those bucks!
So... Its a perfect solution, but unfortunately its too simple, it doesn't pay off the cronies, and most importantly, GOVERNMENT === FAIL!
Sigh...

[kyhillbilly]

Maybe we need to look at the cause of the problem instead.

Time for all lenders, banks and savings & loans to be thrown out of the residential mortgage business. The mortgage lenders have proven beyond any doubt that they are incapable of running that business therefore the federal government should nationalize it all. Not only can they not manage the mortgage market they have manipulated it and corrupted it to the point of destroying it. The federal government should be the only source of residential mortgages and they should be low to no interest mortgages. Low to no interest mortgages would allow people to pay off their mortgages instead of being constantly in debt.

Instead of a home that sells for $300,000 really costing $900,000 when interest is included it would cost closer to $300,000. The $600,000 difference could go into other more productive investments. Any resell of a home goes through Freddie and Fannie and a newly created Federal Home Loan agency. Second ( or 12th ) homes could be financed through the banks.

A stable housing market is essential to a stable economy and the current situation exposes all of the short comings. This was not an accident this was a plan carried out by people as dangerous to this country as enemies outside the country. The dream of home ownership vs. the dream of Yacht ownership. Is it going to be Main Street or Wall Street? Which do we value more in America? Time to decide.

[CaptainObvious]

The real kicker here is that the guy with 12 homes can go to bankruptcy court and get the mortgage on his 12th home restructured. But if you only own one home, you cannot seek relief from bankruptcy court.

Gotta love these "compassionate conservative" policies eh?

[jr8585]

Here's a suggestion
Reduce the mortgages to current market value even if the person is current on their mortgage. For the people in default this would possibly now become affordable and for those that are current this will give more expendable income. If a person has no financial gain by taking this option then give them a tax deduction based on a percentage of the value their house. Obviously there will still be foreclosures creating an inventory. List these at 80% current market value, attracting new buyers.

Freeze the trading on banks requiring assistance allowing them to adjust their book value as well as make the necessary changes to show profit.

I believe by doing this the people who now have extra income will spend more and in turn this stimulates business. For those that were in default, they now keep their homes and its one less burden on the tax payers.

[jsalomon11]

I disagree with your assumption that giving a $7,500 dollar voucher would fix the current crisis. Let me begin by saying that I believe your voucher will work in the short term. Millions of mortgages that are currently default would be brought back from the dead. The money would eventually be redistributed to the financal companies by the payment of these loans. But my question is this. Isn't the issue that all these financial companies granted mortgages to individuals that could not afford them. And if this is correct what happens after they pay up their debts. Don't we just go back a couple of years, when we realized that foreclosures would begin to occur. Won't these same people just start to miss payments again because they still don't have the income to pay their bills. Personally, I believe that a combo package of your vouchers and the current plan in congress could work, but I believe that it is going to cost and arm and a leg to fix and that is going to kill the value of the dollar.

[PJay1]

Excellent!

[cylindar]

I love it!!!!

[mredder4]

Yeah, I don't want to see the government use my tax dollars to pay off the mortgages of people who are trying to live outside their means. It's time for the American Dream to be scaled back into reality a little bit, before renters and other non-home-owners get stuck paying for houses that they don't live in. Can't afford a house? You don't get a house. It's that simple. I don't make reality this harsh; it just is that way on its own.

[harker6868]

That kind of ignores the fact that home values were inflated to begin with.

[sophistwatch]

Wise man. Wise article.

There is no distribution of wealth possible if the common man fails.

[schatsie]

I love it! Obama go global with this.....

[ThePeacemakers]

TIMEOUT !!!

From all RENTERS.

Can we get tax cuts?

From all SINGLE PEOPLE.

Can we get tax cuts?

[AlexanderH]

All these plans are such utter BS. you know whose really getting F-ed by allthese plans so far? those of us who didn't take out ridiculous credit debt in the last 8 years. All those of us who behaved responsibly and controlled our debt get jack squat while everyone including mega banks gets to just not pay their debts. It makes me so disgusted.

[ProudLiberalDemocrat]

I read Professor Etzioni's work about community back in early 1990's when I received my MBA......I like these kind of no-nonsense solutions.....