Seeing how the Democrats seem incapable of figuring out the boondoggle Bernake and Paulson are in the process of engineering, I thought I might outline a modest proposal for a fair resolution to the present financial crisis.
Buy two trillion dollar toxic sub-prime at 40 cents on the dollar; disaggregate, repackage and sell back to existing home owner for 50 cents of the original face value. The taxpayer realizes a 25% ROI, and average Joe gets his house for half the price of its originally bloated asking price. That effectively puts a floor on valuations and ensures that those who took the risks suffer the losses.
Maybe the haircut could be a little less severe, say 60 cents and resold at 70 cents for an ROI to the taxpayer of 16.66%. But whatever the discount, the plan covers all the bases: it both socializes the risks and the profits.
The plan can be defended against all criticism by simply repeating the following phrase:
It might be costly but it is less costly than doing nothing.
Travis Fast is a political scientist, the author of “Disparate Models, Desperate Measures: The Convergence of Limits” (Varieties of Capitalism, Varieties of Approaches. Ed. David Coates, New York: Palgrave Macmillan, 2005) among other publications. This modest proposal was first published in his blog Relentlessly Progressive Political Economy (URL: <rppe.wordpress.com/>) on 21 September 2008.