Setting the Record Straight

September 22, 2008

Send in a Gunslinger

Oracle of Omaha as Sheriff of Subprime


Note: Democrats pressed to include in the $700 billion mortgage bailout plan provisions for helping homeowners threatened with losing their homes because of subprime loans. The Treasury secretary resisted, saying it would delay the plan centered on bailing out those holding derivatives based on the subprime loans. A trickle-down economics solution.


    The real government people doing the work of trying to resolve the financial meltdown have thrown up their hands, realizing there is no regulatory or legal system in place to resolve it. Instead they are thinking outside the box, just not far enough.

    One proposal that has been raised coincides with one we had been tinkering with for this page—buying up the subprime mortgages on houses most in danger of foreclosure. Although we are believers in compassionate government, we have a take that is different from that of Treasury Secretary Henry Paulson.
     He says it would take “hundreds of billions” of dollars for the government to do buy the bad mortgages, and would leave an impression it was bailing out the greedy money-lenders who enticed naïve borrowers into taking out such mortgages.
     Although the United States already is deeply in debt—nearly half a trillion dollars—adding to the debt with a mortgage bailout could be defrayed in part by a quicker-than-planned exit from Iraq.

     Or call in Warren Buffett, and maybe his new-found partner in charitable largess, Bill Gates. This is the idea we had been working on.

     Even these two guys do not have cash to throw around that is anything like the federal government can come up with, but they could make a huge dent in at least this part of the crisis.
     Create a foundation with people—how about some of those “community organizers” Republicans now appear to disdain—scattered all over the country with no-strings authority to buy up bad mortgages, beginning in depressed neighborhoods at homes in greatest danger of foreclosure. Offer the mortgage holders a bit above their foreclosure costs and have the foundation hold the paper.
     The foundation broker then would offer the person with the mortgage a monthly payment equal to that charged before the amount crossed beyond the line of affordability.
     In most cases, those mortgages would be paid off within the lifetime of the mortgage. Saving houses in a neighborhood from foreclosure also saves the neighborhood, as towns and cities all over America are discovering. Eventually, the value of the house in danger is likely to equal at least the amount being mortgaged.
     The foundation, as with the government, is not in the mortgage business to make money, but if it does make money, all the better. That gives the paper-holder more funds to put back into the program, raising the bar to a higher income level.
     Any such action by a foundation or the government has the added effect of creating competition with the money-lending community. Tighter regulations would still be necessary, but competition from an entity outside of the private sector could go a long way to make businesses a bit smarter, less reckless and less greedy.
     We will never hope for compassion above the level of the neighborhood grocer, if those exist any more.


          From Oracle to Sheriff

I think we need a gunslinger.
Somebody tough to tame this town.
I think we need a gunslinger.
There’ll be justice all around.

                –John Fogerty’s “Gunslinger,” from “Revival” 



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