05/20/2009 05:12 am ET Updated May 25, 2011

A Simple Solution: A National Debt Moratorium

I hope they don't kill me for this. Alright, here it goes.

In the wake of the now-expired freeze on foreclosures on the part of financial institutions receiving financial assistance from the federal government via the TARP program, it's obvious that some more radical medicine is needed to halt the financial decline in this country. Since it is also obvious that IndyMac, JPMorgan Chase, Bank of America and their ilk will continue to act in their own self-interest, regardless of the consequences of their actions to the nation, I hereby make simple proposal:


In essence, this moratorium would freeze all payments of debt to financial institutions for a certain period, to allow debt holders to be able to raise a cushion of cash and prepare for further economic turmoil. I personally favor a brief period, let's say of 90 days, although some may want to extend it to 180 days. The moratorium would only freeze the payment of the obligations -- it would not modify the terms, per se, but suspend them for the time being. And yes, that means no payments on your mortgage, your credit cards, your car loan or any other financial instrument. It would not extend to wages, however.

This is not as crazy as it sounds, as there is plenty of precedent for this kind of government intervention. Back in ancient Rome, the Gracchus brothers, leaders of the populares, the party of the people, in conflict with the wealthy optimates or landed gentry, advocated just such debt relief. Unfortunately, both brothers were assassinated for their efforts. All the same, later Roman leaders successfully utilized forms of debt relief to curtail the influence of the plutocracy. Lately, debt moratoriums have been the province of third world countries, such as Ecuador declaring a moratorium on its debt to the International Monetary Fund in 2008, or Argentina in 2001. However, during the Great Depression, American politicians also wielded the moratorium sword. In 1931, President Hoover proposed and implemented a moratorium on debts from the cost of World War I. Two years later, upon his inauguration in 1933, President Roosevelt declared a bank holiday -- for all intents and purposes a moratorium -- under which all banking business was placed under the regulation of the Secretary of the Treasury.

But what about the sanctity of contracts, you say. Rewriting contracts is expressly prohibited by Article I, Section 10 of the Constitution. Well, it ain't. During the Depression, many states drafted laws imposing moratoriums on foreclosures, rewriting the terms of contracts for years. Case in point--the Minnesota Mortgage Moratorium Law. In 1933, the Legislature in that state said that "extremely low prices, great unemployment, lack of credit, stagnation of businesses, agriculture and industry" had created a public economic emergency. In its view, the state had a right under its police power to declare an economic emergency "to safeguard the public and promote the general welfare of the people" which necessitated the drafting and implementing of the moratorium. Needless to say, financial interests -- banks, loan holders -- sued, losing both at the state and the federal level. When the case finally arrived at the U.S. Supreme Court, Chief Justice Charles Evans, in the case of Blaisdell versus Home Building & Loan Association upheld the constitutionality of the Moratorium as a "reasonable means to safeguard the economic structures upon which the good of all depend."

In other words, a National Debt Moratorium is perfectly legal under the police powers afforded government in the Constitution. That means that a federal debt relief plan could be implemented at the national level by President Obama by executive order with the mere stroke of a pen. I propose that, failing such federal action, state legislatures across the nation begin unilaterally imposing such moratoriums, confident in the knowledge that they have legal precedent and the welfare of the people behind them.

Extreme times call for extreme measures. For a long time banks and financial institutions benefited from deregulation, a policy pursued in the name of "consumer sovereignty," a concept developed at the RAND Corporation in the 1950s. Well, if we consumers are really kings, it's time we make our wishes heard. And since we find ourselves in a hole dug by the financial entities, let them wallow in the royal muck along with the rest of us for a while.