Trickle-up Bailout

The economy and the election. It's hard to think about anything else this week. At dinner with friends last night I tried to make a point about Reagan-age trickle-down economics. The friends (one backing each of the two political "teams") and the Margaritas were too good to push it too far.

Anyway, I was glad to see a little follow-up in the Washington Post this morning by two smart dudes from Yale. They propose a trickle-up bailout plan. Here is my pared down cut-and-paste of the article, in case you don't have time to read the whole thing:

The theory underlying the bailout plan stalled in Congress is that rescuing the finance industry will ... eventually trickle down to average Americans.

There is an easier and more politically palatable fix: Pay off all the delinquent mortgages.

Some will argue that it is grossly unfair ... why should my profligate neighbor be rewarded for overleveraging himself?

Because such unfairness is a small price to pay to avoid a rapid transition to a socialist economy, the collapse of our financial system (and its related global implications) and a frightening shift of economic power toward the executive branch. Why shell out $700 billion to Wall Street dealmakers and the companies they managed into this mess? Wouldn't it be preferable for individual homeowners to benefit directly?

Homeowners would become partners with the government in resolving the crisis.

This solution would start by helping ordinary Americans and would quickly spill over to revive the financial markets. Directly addressing the underlying cause of the crisis would help ensure that we would not be facing the same crisis again down the road. While Wall Street has only recently felt the bite of foreclosures and delinquencies, communities across the nation will face greater financial and social fallout if the foreclosure crisis continues.

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