Bottom-up Bailout: Pay Off Delinquent Mortgages

Using tax money to pay delinquent mortgages would revive markets
By Jim O'Neill,  Newser User
Posted Oct 1, 2008 11:55 AM CDT
A foreclosure sign stands outside an existing home on the market in Denver.    (AP Photo/David Zalubowski, file)
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(Newser) – Rescuing ordinary Americans—not Wall Street—should be the theory behind the government bailout, and that means paying off delinquent mortgages, say two Yale professors in the Washington Post. If that sounds unfair, it is, but it's "a small price to pay to avoid a rapid transition to a socialist economy," write Jonathan Koppell and William Goetzmann.

A bottom-up approach would immediately reopen credit markets and ease liquidity issues, putting Wall Street back in business at a lower cost to taxpayers. It would generate longer-term benefits than simply refunding Wall Street, and could even breathe life into the moribund housing market. Using Fannie Mae and Freddie Mac to issue fixed-rate mortgages across the board also gives the government ownership in a real investment rather than a bucketful of questionable securities.