K. Z. forwarded: “It’s Time for Debt Forgiveness, American-Style.”
WATCHDOG responded: The writer overlooks the fact that the banks capital bases would be seriously depleted or in many cases eliminated if they absorbed these losses. This would likely trigger a world wide stock market crash and bring about a major depression.
K. Z. replied: The Treasury loaned them hundreds of billions; the Fed loaned them more than the GDP. How about everyone else?
What do you think?
October 28, 2011
By William Greider
The Nation, October 26, 2011
The rebellious citizens occupying Wall Street shock some people and inspire others with their denunciations of bankers, but everyone seems to know what they are talking about: it is the barbaric and suffocating behavior of the nation’s largest banks (yes, the same ones the government rescued with public money). Right now, these trillion-dollar institutions are methodically harvesting the last possible pound of flesh from millions of homeowners before kicking these failing debtors out of their homes (the story known as the “foreclosure crisis”). This is a tragedy, of course, for the people who are dispossessed. For the country, it is a generational calamity.
“We are in the reverse New Deal,” Christopher Whalen, a savvy banking expert at Institutional Risk Analytics, told me. He meant that events are dismantling the ingenious engine that helped generate America’s broad middle class. Homeownership was the main driver in accomplishing that great social change. For three generations, people of modest means could buy a house knowing it would secure their place in the middle class and allow them to accumulate significant savings. If the family held the standard thirty-year, fixed-rate mortgage, they were painlessly saving for the future every time they made a payment, acquiring greater equity in the home as they did so. With moderate inflation, the house would steadily increase in value even as their monthly mortgage payments stayed the same. So the cost of housing actually declined for the family, as a percentage of its income. Meanwhile, the accumulating equity became a nest egg for retirement or something to pass on to the kids….
There is a solution, and it will appeal to the rebellious spirits occupying Wall Street because it combines a sense of social justice with old-fashioned common sense. It is forgiveness—forgive the debtors. Write down the principal they owe on their mortgage to match the current market value of their home, so they will no longer be underwater. Refinance the loan with a reduced interest rate, so the monthly payment is at a level that the struggling homeowner can handle. This keeps families in their homes, with a renewed stake in the future. It gives homeowners incentive to keep up their payments, because once again they have some equity and the opportunity to accumulate much more.… (more)
