Letting the rich take the fall

[Kurt_and_Hunter]

Here's an anecdote that has haunted me all week. It's one of the crummiest things I've ever seen, but speaks volumes about the utility of the concept of letting things go to hell to punish the rich:

During one of our many economic down-turns Donald Trump's net worth was negative. He was being interviewed on TV riding in his limousine with his cashmere coat, rolex, wet-bar, etc.. He pointed out the window to a homeless beggar and said, "You see that guy? He's worth ten million dollars more than I am."

The point is that Donald Trump would NEVER have traded places with the beggar. His "punishment" as a result of economic hard-times was trivial in every scenario that didn't involve a guillotine. The beggar, on the other hand, lives a life that makes every little fluctuation in the economy a matter of life and death.

There is no way to selectively punish the rich through permitting economic chaos. The working class is always affected most directly by economic conditions.

(If that were not the case we would remember the Great Depression as primarily a tragedy for bankers.)

Change the whole system? Absolutely. We should! But that is not going to happen this week in any scenario.

The key here is not to contest the bail-out itself, which is in practical terms at least as vital to the poor as it is to the rich.

The key is to minimize the growth of tent cities in the short term, AND not let the momentum for reform slip away in the months and years to come.

(For the record, I am not a member of the investor-class.)

[Union Thug]

1. Alright. I'll accept this IF we see people going to prison...

and not country club estates, the same federal prisons that house murders, rapists and gangbangers. Each and every one of the greedy bastards whose fingers were dipped into this dirty business need to be locked up. All life terms. No parole.

Otherwise, I say let it all collapse.

[Beregond2]

3. And what would you charge them with?

What laws have they broken? As far as I know there is nothing illegal about being stupid and greedy. If there were, 90% of the country would be locked up.

[DJ13]

5. Malfeasance, fraud, tax evasion are some possibilities

Look at the prosecution of Enron's executives and Worldcom for examples of what they could be prosecuted for.

[Union Thug]

6. Yes. And, oh, yeah, how about being responsible for destroying the

lives of millions of people who got caught up in their ownership society scam, and hijacking the economy of this nation?

Prison is too easy. I'm anti-death penalty, but in this case, I would love to see these guys doing their best soap-on-a-rope impression in the public square.

[Trajan]

14. I dont buy that the 'ownership society' is a scam ....

It was mishandled ....

1) If wages had been allowed to ramp up as profits and volume increased: households would have had the money to pay their bills and would NOT have defaulted on their mortgages .... by declaring ownership 'a scam', then you are ignoring the fact that wages and compensation failed to keep pace with profits, and there is no doubt that is true .....

2) Home ownership has a long tradition in PROGRESSIVE government ... The New Deal took into account that citizens would purchase homes once they became solvent and gained economic ascendancy ...

3) This last year or two ... people were HAMMERED by adjustable mortgage resets ... Those with fixed loans were not in any way impacted by those resets .... Perhaps the real problem was that adjustables had poor regulation, and not that families were able to own homes ....

There is no scam in owning a home .... It makes social and economic sense ...

[BearSquirrel2]

12. I personally believe in a felon mentoring system ...

As punishment for their gambling away America's future, I think every one of these financial crooks should have to do in prison community service. They would each be appointed "mentor" to a violent felon and placed in the same cell so that the felon in question can "learn" from their new "mentors". After a period of time, the mentor would be moved into successive cells with new felons to reform. This way "everybody" wins.

[Trajan]

2. Yes .. There are impacts down the line ...

But what about the Hypocrisy ???

These are people who have demanded NO taxation ... who have watched as the poor and middle classes have struggled to live AND have footed the bulk of the taxation bill while the 'rich' scoot by in their fast cars, crying into their refreshing seltzer drinks about how they suffer the yoke of taxation ....

And then ? : Use the VERY TAXES they despise to pad the losses from their own malfeasance and ignorance of market vagaries, and to support their false kingdoms from falling into the same lot as the rest of us ....

Yeah .... I don't want 'the rich' to fail and hurt the rest of us; but THEY NEED TO PAY THEIR FUCKING WAY ....

BOTH in fair taxation AND in wages and compensation to their workers ...

No more of this asymmetrical taxation bullshit .....

[Kurt_and_Hunter]

4. By all means. This should be a wake-up call

[calmblueocean]

7. But why can't the bailout go to homeowners instead of the fat cats?

That's what I don't understand, and no one has given me a satisfactory explanation yet.

Instead of buying a trillion dollars worth of failing mortgage backed securities from a nakedly corrupt and incompetent financial industry, why aren't we shoring up those securities by bailing out the folks in foreclosure instead?

Create a government program that allows people in foreclosure who meet certain criteria to have the difference between what they can afford to pay on their mortgage and what is due paid by the government for a set period of time. The mortgage backed securities would now be worth something substantial, and we'd have the all the additional benefits to the country that homeownership provides.

I just don't get it.

[Kurt_and_Hunter]

9. The paper being bought is not primarily foreclosed mortgages.

It is mortgage backed securities that people have lost faith in because homeowners MIGHT default in the future.

Essentially, banks are hoarding money because they fear they might need it next month if a bunch of people default. So the system locks down... nobody wants to lend because they fear future foreclosures. And people who need to borrow money can't borrow, so economic activity goes down, so more people get foreclosed in a spiraling down-trend. The fear about the future stability of mortgage backed securities becomes a self-fulfilling prophecy.

I want any eventual solution to reduce foreclosures on the individual level as well, but that would not in and of itself address the specific short-term problem.

[calmblueocean]

13. I'm not following your logic.

Yes, the value of these mortgage-backed securities is unstable because homeowners might default. So you make sure that homeowners won't default, by creating a government program for people who are in (or about to be in) foreclosure. You guarantee the difference between the stated mortgage payment and what the homeowner can afford to pay, and thus reassure the banks.

I should be clear, I'm not really asking for critiques on this tiny sketch of a plan. I'm after a more general answer: Why not attack the instability of the mortgage-backed securities at the level of the mortgage and the homeowner, instead of just buying essentially bad paper? I can't believe that we're unable to do that.

[cali]

8. the bailout should allow for the feds to renegotiate mortgages

enabling most people threatened with foreclosure to stay in their homes. It should also preclude ANY fucking golden parachutes for top management at firms being bailed out. And that's the very least we should see.

[Yuugal]

10. no way

So your view is the same as Pelosi's then? "Lets give the rich everything they ask for and put it on the backs of people (me) who already lost our homes to crooks", right? Fuck that. They ran their business poorly and deserve to go under.

I do not own a house, stocks, or anything of value. Me and my kids are being asked to pay for a party we already paid for and weren't even allowed to attend. Fuck the rich.

Your plan is the same "go along to get along" crap I've always despised in this party.

"The key here is not to contest the bail-out itself, which is in practical terms at least as vital to the poor as it is to the rich"

Yeah right, the key here isn't to contest being robbed by the same filthy fuckers yet again, its to hope that after they get their money they will want to help us..... Uh-huh.

[DailyGrind51]

11. The CEOs of the banks who purchased these dubious loans from

the mortgage brokers should not be allowed to retire with platinum parachutes? The courts should permit the abrogation of any severance contracts they have with their banks, like the courts did with united Airlines unions and their pension agreements.

[catnhatnh]

15. Kurt, It was a bold post

and would make sense in a sane world. Unfortunately, you make it in an insane world where people you perceive as your peers (IE:likely to still have things like internet access, a home, food, and warmth, by next spring.) would "argue objectively". But what you are in fact seeing is scared and angry people who fully realize that either they or friends or relatives are heading down the tubes...This is exactly what it would have looked like in immediate pre-revolution France had there been an internet. Back then being a peasant was normal-but now they're called "Street People" and the thought of Grandma transferring to those ranks is ire-inducing. I know because it may happen to me, and if it does all anyone here will know is I disappeared from DU.