Monday, February 2, 2009

Just a thought

If, instead of pouring billions, tens of billions, hundreds of billions and ultimately trillions into "saving" the banks, suppose they are allowed to fail? Once they have failed, they can then be painlessly nationalized, at little to no taxpayer expense. And once they are the property of the US government, the government will be in a position to put people back into the houses that had been foreclosed. They could be given the option of renegotiating their old mortgages at substantially lower interest rates or simply paying the government a monthly rental. In fact, the same deal could be worked out for everyone with an outstanding mortgage who's having trouble keeping up with the payments: either renegotiate the mortgage or simply let the government have the house and pay rent.

Note that such an arrangement would actually benefit taxpayers. By nationalizing already failed banks, the government would automatically come into possession of the foreclosed homes. No need to pay anyone anything for either the banks, which would have already failed, or the homes, which would have already fallen into foreclosure. By then selling the homes back to the former tenants or collecting rent on them, the government would be earning substantial income. Not only that, there would be no need to lay off any of the bank employees, since their services would still be needed in order to keep the newly nationalized banks running.

Of course, those with stocks in the banks and those who had gambled on bonds offered by the banks would lose their shirts. But, let's face it, that has already happened. These people took calculated risks, their risks failed to pay off, so they can hardly complain when they are forced to swallow the losses.

Regardless of whether such a plan could actually work, it would be viciously attacked from the right as out and out "socialism." And since everyone in Washington lives in fear of Rush Limbaugh, whether they are willing to admit it or not, I'm afraid the idea wouldn't have much chance of getting off the ground. Regardless, I do think it worth considering and if nothing else might help us get the current situation into better perspective, from a viewpoint that's rarely considered: that of the ordinary citizen.

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