The post after the jump will make “What More can the Ded do?” seem disciplined, succinct and sober.
update: Minds think alike, but some bloggers are more concise than others — How About Prison Then ?
The USA is in a tough spot with high unemployment, a sluggish recovery and an insane majority in the House of Representatives. This situation has caused many people to argue that the Federal Reserve Board and and should do more to stimulate the economy. I don’t think they are our best hope.
I think we should look to publicity hungry TV camera chasing ambitious prosecutors who want to obtain higher elective office (think Eliot Spitzer and Rudolf Giulaini). My “logic” follows.
First the coulda woulda shoulda whine. I really think the economy would be in better shape if bankruptcy judges had the tool they need to end the paralysis of the housing sector — the power to reduce mortgage debt to the level a bankrupt debtor can pay. This is known as “cramdown” and is a proposed reform which was rejected by congress (Causing Senator Durbin to claim that the bankers own congress). Clearly it is not going to happen.
I think it is necessary to convince the bankers that they want to renegotiate mortgages and write down debts. This would liberate people with underwater mortgages to move to look for jobs (if they were rational they would just walk away from the debt but people aren’t). It would stop the flow of foreclosed homes on to the market which has helped cause record low rates of new Home sales and declines in housing prices (which were inevitable but now they are fine and without a change in mortgage servicer behavior they will overshoot).
I also think it should be possible to convince bankers to do this.
I don’t think that the USA needs new laws to clean up the mortgage mess — the banks decided they didn’t have to follow existing laws. I assume readers are familiar with the MERS mess, but I will very briefly describe it. A tiny firm falsely claimed it owned mortgages so that banks and other investors could evade the very modest tax on transfers of ownership of mortgages. This created problems when mortgagers defaulted and perjury and forgery have been used in efforts to foreclose.
Also bankers are very much hated reviled and detested. It seems to me that an unscrupulous ambitious prosecutor could get ahead by empanelling a grand jury to investigate possible criminal activity by bankers. Really it seems to me to be a no-brainer. I’d guess that Congress wouldn’t dare block such efforts by declaring an amnesty for bankers. I’d guess that the prospect of felony indictments would make bankers a lot more willing to try to reach agreement with mortgagers in default. I’d say the first prosecutor who trades immunity from prosecution for a healthy economy will be elected President of the USA.
Now banks have shareholders and managers of banks can’t and therefore won’t give away the shareholders’ money in order to respolve their personal problems with an unscrupulous ambitiour ruthless prosecutor leading a grand jury like a flock of sheep. Also we can just count on the tooth fairy to leave a healthy economy under our pillow.
So why isn’t this happening ?