The Road to Recovery

Arun Gupta Oct 3, 2008

As The Indypendent goes to press, it appears Congress will pass a bailout for Wall Street. But even those who support it, many tepidly, believe it’s just a bridge fund to the next presidency.

New York Times columnist Paul Krugman observes, “The real financial rescue still lies in the future, probably under the Obama administration.”

So if the crisis remains, how can we fix it without flushing another $700 billion down the drain? Despite talk that the only choice was the Paulson plan in lipstick or nothing, there were more options on the table than there are millionaires in the U.S. Senate.

Virtually every economist says the plan will work only if the U.S. Treasury overpays for mortgage-backed securities. Many, including global finance titan George Soros and economist Nouriel Roubini, who predicted this whole debacle, propose buying equity in banks requesting a bailout instead. The banks get liquidity to stay solvent while taxpayers get a stake in profits when they recover.

Progressive economist Dean Baker argues for the Federal Reserve to take over the banks.

Avery Goodman, writing on the financial website Seeking Alpha, contends that the Fed should be shut down because it encouraged banks to create all manner of hazardous mortgage-backed instruments and dicey mortgage loans. Goodman charges that the Fed has already overpaid a stunning $606 billion for Wall Street trash this year.

Even if the Paulson plan works, which is a $700 billion question, it won’t boost the housing sector. UCLA Economics Professor Edward Leamer says the government should just buy mortgages directly and rent out the houses. He calculates buying half-a-million homes for $150 billion would revive the housing sector.

University of Texas Professor James Galbraith says we need a new Home Owners Loan Corporation that would “rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished.” To aid municipalities and states that are cutting services, Galbraith calls for federal revenue sharing to plug budget gaps and a national infrastructure bank to fund capital improvements.

To pay for the many bailouts thus far, former World Bank Chief Economist Joseph Stiglitz calls for a special finance sector tax, plus a reserve fund to pay for future financial foolery.

Sen. Bernie Sanders (I-Vt.) says soak the rich by tacking a 10 percent surcharge tax on anyone earning more than $500,000 a year. The estate tax can also be reinstated, which previously applied to those with more than $5 million.

Some argue single-payer healthcare could hold back the foreclosure tide. High medical bills are a leading cause of bankruptcy and costly insurance premiums are a strain on millions of households. A Medicare-for-all plan would save the United States money overall and make it easier for many people to pay their monthly mortgages. Others suggest ending the Iraq and Afghanistan Wars, which would save about $200 billion a year.

To revive a productive economy, The Service Employees International Union, The Nation and Rep. Dennis Kucinich (D-Ohio) all propose a “New New Deal” of public works that include investing in infrastructure, alternative energy and strict regulation of finance.

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