The mantra of recent US fiscal policy has been "go easy on the bankers," writes Paul Krugman in the New York Times. Trouble is, that attitude neither holds them accountable nor does it put us on the road to recovery. Now, federal officials are calling on states to take “a very modest settlement” from bankers whose “abusive mortgage practices” helped get us into this mess. These deals would let bankers "off the hook" for penalties of up to $30 billion—a drop in the bucket.
Some argue that such a sacrifice must be made to restore the housing market; others quietly suggest that "that getting tough with the banks would undermine broader prospects for recovery." But the fact is, "removing the legal cloud over foreclosure” would just “accelerate foreclosures." As for "getting tough": It’s not the banks’ health that’s the real problem in today’s economy—it’s "the overhang of household debt, largely created by the $5.6 trillion in mortgage debt that households took on during the bubble years," argues Krugman. "Serious mortgage relief could make a dent in that problem"; $30 billion deals won’t.