Bail Out the Homeowners!
By PAUL CRAIG ROBERTS | Counterpunch, Oct 3-5, 2008
Is the Paulson bailout itself as big a fraud as the leveraged subprime mortgages?
Yesterday, here on CounterPunch, I discussed the bailout as proposed and noted that the proposal cannot succeed if it impairs the US Treasury’s credit standing and/or the combination of mark-to-market and short-selling permits short-sellers to prosper by driving more financial institutions into bankruptcy.
A reader’s comment and an article by Yale professors Jonathan Kopell and William Goetzmann raise precisely this question of the fraudulence of the Paulson package.
As one reader put it,“We have debt at three different levels: personal household debt, financial sector debt and public debt. The first has swamped the second and now the second is being made to swamp the third. The attitude of our leaders is to do nothing about the first level of debt and to pretend that the third level of debt doesn’t matter at all.”
The argument for the bailout is that the banks will be free of the troubled instruments and can resume lending and that the US Treasury will recover most of the bailout costs, because only a small percentage of the underlying mortgages are bad. Let’s examine this argument.
In actual fact, the Paulson bailout does not address the core problem. It only addresses the problem for the financial institutions that hold the troubled assets. Under the bailout plan, the troubled assets move from the banks’ books to the Treasury’s. But the underlying problem–the continuing diminishment of mortgage and home values–remains and continues to worsen.
The origin of the crisis is at the homeowner level. Homeowners are defaulting on mortgages. Moving the financial instruments onto the Treasury’s books does not stop the rising default rate.
The bailout is focused on the wrong end of the problem. The bailout should be focused on the origin of the problem, the defaulting homeowners. The bailout should indemnify defaulting homeowners and pay off the delinquent mortgages. As Koppell and Goetzmann point out, the financial instruments are troubled because of mortgage defaults. Stopping the problem at its origin would restore the value of the mortgage-based derivatives and put an end to the crisis.
This approach has the further advantage of stopping the slide in housing prices and ending the erosion of local tax bases that result from foreclosures and houses being dumped on the market. What about the moral hazard of bailing out homeowners who over-leveraged themselves? Ask yourself: How does it differ from the moral hazard of bailing out the financial institutions that securitized questionable loans, insured them, and sold them as investment grade securities? Congress should focus the bailout on refinancing the troubled mortgages as the Home Owners’ Loan Corp. did in the 1930s, not on the troubled institutions holding the troubled instruments linked to the mortgages. Congress needs to back off, hold hearings, and talk with Koppell and Goetzmann.Congress must know the facts prior to taking action. The last thing Congress needs to do is to be panicked again into agreeing to a disastrous course.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. He can be reached at: PaulCraigRoberts@yahoo.com




Haiti: In Solidarity with its Five Freedoms
October 5, 2008By James Petras | Information Clearing House, Oct 5, 2008
Today the acid test for all democrats in North and South America is the issue of the military occupation of Haiti, the economic pillage and denial of elementary political and human rights of the Haitian people.
In 2004 a US-led invasion force overthrew the democratically elected government of Jean Bertrand Aristide and subsequently promoted and organized an occupation army. This colonial military force has repeatedly violently repressed popular demonstrations, violently raided the neighborhoods of the poor and killed, wounded and arrested Haitians who were affirming their rights of self-determination and an end to foreign occupation.
Since the United States bears major responsibility for the invasion, occupation and subsequent pillage and privatization of essential public services, we have a special responsibility to speak out clearly and forcefully to the United Nations (UN) in support of Haiti’s Five Freedoms:
1. The UN must end its military presence of Haiti through its occupation army (MINUSTAH), action contrary to the very founding principles of the organization. Haiti must recover the right of self-determination and the freedom to govern itself.
2. The Haitian people demand the end of the pillage of its national treasury by official and private banks extracting payments of $1 million USD a week for illegitimate debts contracted by past corrupt dictatorial regimes. Haitians demand freedom from illegitimate elite debts in order to finance basic life-sustaining programs for the 80% of the population living in extreme poverty.
3. Every country, which has suffered massive natural disasters, as the hurricanes that recently devastated Haiti, is entitled to large-scale, long-term humanitarian aid with no strings attached. Haitians demand the immediate fulfilling of aid pledged and its allocation according to needs without MINUSTAH manipulation to perpetuate its occupation.
4. The collapse of the free market model today highlights the disastrous consequences of the IMF-World Bank policies of privatization of public services in Haiti, where ‘private health and education’ effectively excludes the vast majority of Haitians. Haitians must regain the right to re-nationalize public services and all other strategic economic sectors necessary for their well-being.
5. Free elections means the return of deposed, exiled and persecuted political leaders and the end of foreign military occupation and repression of anti-colonial movements. Elections with occupation guns pointed at the heads of the electors and candidates have no legitimacy. We, the American people in North, South and Central America, have a responsibility to demand the end of MINUSTAH and the return national sovereignty to the Haitian people. No government no matter what its political claims and rhetoric can justify its democratic credentials when it acts as a colonial gendarme.
James Petras latest book , Zionism,Militarism and the Decline of U.S. Power – Clarity Press :Atlanta Ga.
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Tags: Haiti, Haitian people, IMF-World Bank policies, Jean Bertrand Aristide, military occupation, MINUSTAH, United Nations, United States, US-led invasion
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