Remember The Music Man? That's the musical where a con man tricks an entire town's parents into buying musical instruments they don't need by promising to teach music to their kids. Then he skips town. Only when he makes good on his promises is he's forgiven by the town and rewarded with true love.
If today's America was that town. they'd have written the Music Man a fat check and promised not to prosecute him. They'd even let him complain to the local newspaper about being called a "con man," the way JPMorgan Chase CEO Jamie Dimon complained to the New York Times about criticism of bankers.
As for those bilked parents and their disappointed kids, Americans in government and the media would undoubtedly say "Serves 'em right."
Serves 'em right. That's the attitude our leaders are taking toward homeowners all across America, millions of whom were bilked by their banks into taking out loans based on inflated housing values. Our government has yet to provide these people with the relief so many of them deserve, even though that would provide the entire economy a huge boost and could create a million jobs every year.
Our leaders refuse to take action on mortgage relief, even though it wouldn't cost a penny and would actually shrink the Federal deficit by putting people back to work. When people work they pay taxes, and they stop using government assistance.
Nearly one in every four homes is underwater, which means that homeowners owe more for their mortgage than the home is actually worth. They borrowed money for a variety of reasons -- mostly to purchase or improve the home, but also as a source of consumer credit. The "serves 'em right" argument paints these homeowners as greedy and acquisitive while portraying the banks as innocent bystanders caught in the money-crazed stampede of middle-class American families.
That attitude overlooks the active role that the banks played in encouraging homeowners to borrow. Like the Music Man, banks convinced borrowers that they needed something -- in this case, a new home or a line of credit. They, along with accomplices in the economic and political fields, assured these homeowners that homes would always go up in value. Then they pumped up the market value of these homes, both indirectly and (in many cases) by hiring "friendly" appraisers who would be sure to overstate the home's value.
It was bankers and not homeowners who made billions by writing bad loans, then bundling them and selling them to unwary investors (thanks to corrupt rating "agencies" who rated them "AAA" to ensure their own cash flow). Those investors included states, municipalities, and pension funds. Then, after they'd collected their ill-gotten gains and paid themselves billions in bonuses, the economy crashed when the artificial bubble that made them rich finally burst. Bankers took more than $14 trillion in public assistance, much of which hasn't been repaid, then promptly paid themselves billions more in bonuses
Yet whenever anyone suggests helping the homeowners they've hurt, bankers and their fellow travelers howl in outrage about helping the "undeserving." But American families are at least as deserving as its bankers, and helping them would also help save our struggling economy.
... Meet Solution.
"New Bottom Line," a coalition of faith-based organizations and community organizing groups, has a proposal that would change all that. As Liz Ryan Murray explains, it would require banks to recognize the lost value of homes by adjusting the principal on underwater mortgages so that it reflects the actual market value of these homes.
This plan would have a number of immediate benefits beyond the obvious (and worthy) one of helping the homeowners themselves:
- It would end a cycle of foreclosures that's bringing housing values down even faster and eroding what little is left of middle class America's assets.
- It would create an estimated 1,000,000 jobs every year.
- It would pump $70 billion annually into the U.S. economy.
Why wouldn't the Administration and the Congress do everything in their power to make this happen? Part of the problem is political. Bankers and their lobbyists have enormous political influence in Washington, and they're understandably opposed to a move of this kind.
The resistance is cultural, too. Most Republicans -- and many Democratic officials -- have been indoctrinated with the idea that an American family with an underwater home is "undeserving" of help. That's the same mentality that says bankers at Goldman Sachs or JPMorgan Chase do deserve to be shielded from the consequences of their own bad business decisions. This cultural bias is so deeply ingrained that many officials and politicians would rather let the country suffer financially -- and pay the political price for it -- than take positive steps to help the situation.
The third concern is a little more understandable, although it shouldn't be a barrier. Regulators are understandably concerned that a massive write-down of assets like this would lower the market value of our largest Wall Street institutions, leading to a market plunge and another potential financial crisis. But that can be prevented with judicious preparation on the part of elected officials, regulators, and the banks themselves. Preventive measures could include strict limits on compensation for bank executives and others until the banks are able to restore their balance sheets to fiscal sanity.
Happily Ever After
There's one element of this debate that's been lost in the noise and confusion: Bankers weren't just greedy and reckless. They were also so inept at assessing creditworthiness that one out of every four loans they've written turned out to be a bad risk. The problem isn't just greed. By any objective measure, these banks and their senior executives are terrible at their jobs. There should be a penalty for that, as well as for their more egregious misdeeds.
If Jamie Dimon and other bankers want love, they'll have to earn it the way the Music Man did: By taking responsibility for their actions and doing the right thing. Since they won't do it on their own, our government needs to give them the "tough love" they need so they'll be persuaded to mend their ways.
Think about it: Washington's debating deficits instead of jobs, and the public's fuming about it. This plan kills two birds with one stone. It creates a million jobs annually, restores consumer confidence, and pumps tens of billions of dollars back into the economy every year. And it actually the lowers deficit while it restores fairness and moral balance between the banks and their customers. Who wouldn't take a deal like that, especially with an election coming up?
When you think about it, the choice is a simple one: We can demand that the banks do the right thing, as the Music Man eventually did. Or we can continue to abandon the American middle class and let our economy keep flailing and failing. The first choice leads to a happy ending for everyone, while the second will leave everyone -- including politicians running for re-election -- facing the music.