Geithner or Krugman? A third option: Help out the under-water home owners and borrowers

[brentspeak]

http://www.rgemonitor.com/financemarkets-monitor/256212/the_real_cost_of_the_geithner_plan

The Real Cost of the Geithner Plan
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Jed Graham | Mar 30, 2009

Treasury Secretary Timothy Geithner's toxic asset plan is a brilliant, highly complex and very expensive answer to the wrong question: How we can raise the value of bank portfolios without improving the quality of the underlying loans?

It is truly remarkable that an administration that preaches progressive economics intends to deploy $1 trillion – including hard-to-value but nevertheless very pricey subsidies – to help banks in a way that avoids helping their existing borrowers.

Of even greater concern is the relatively weak economic thrust of a plan that will take many months to implement and – if successful – may only marginally increase lending because the pool of potential creditworthy borrowers is shrinking as the economy deflates.

The biggest cost of the Geithner plan may be the missed opportunity to deploy these resources in a way that gets at the heart of one of our economy’s central problems – an excess of mortgage debt based on now-fanciful home values.

If we are going to be giving banks subsidies, at least we should make sure they are aimed directly at helping overburdened households to deleverage while bringing a quick end to the foreclosure crisis.

In contrast to the Geithner plan, devoting these resources and subsidies to facilitate a restructuring of the debts of under-water borrowers and those merely treading water could provide an immediate and lasting boost to household cash flow and confidence...

[mirrera]

1. Jon Stewart's idea was the best. Give the money to us for pay-off of our mortgage...

and car loans only, the money goes straight back to the banks, and every one gets a do-over. Brilliant.