Congress should instruct the US Treasury to issue to each American household a mortgage reduction voucher worth $7,500 dollars. There are about 100 million households in the USA. Hence the costs of such vouchers would be the same as those now being suggested to bail out Wall Street investors and banks. Because ultimately these vouchers can be cashed only by paying off mortgages, all these funds will end up greatly alleviating the financial crisis that has resulted from people being unable to make their payments. Thus these vouchers will help the banks by helping the people, rather than hoping that by saving the banks—the people will be bailed out. Think about it as trickling up, instead of down.
One may ask, why issue these vouchers to people who have no mortgage? For fairness’ sake. Given that that the Congressional bailout is using tax payers’ money, all tax payers should benefit from the program. People without mortgages could either use their vouchers as part of a down payment for a house, thus helping restore the housing market to good health and stopping the downward spiraling of the price of houses, one of the causes of the current crisis; or they could sell these vouchers to others who could use them to further reduce their mortgages. (That is, these vouchers should be tradable.)
Democrats should love these vouchers because they benefit all of us, and not primarily those who own shares in irresponsible banks or—their reckless management. Republicans should love these vouchers—as they are akin to the school vouchers libertarians have long favored on the ground that such vouchers leave the choice to each individual. Indeed, people can use these vouchers to pressure their banks to renegotiate their mortgages, to provide more favorable terms—lest they take their vouchers to another bank, get a better mortgage from it, and pay off the old, unfavorable one.
The main criticism against this idea will be that issuing such vouchers takes time, and the financial crisis is at the gate if not in the gate. However, like the 2008 stimulus checks, which were issued within a few weeks, mortgage reduction vouchers could be issued in a jiffy. Critics may also hold that, in this plan, so called toxic assets will remain toxic. However, increased payments from homeowners will make them less toxic and will provide those who hold the assets with major capital injections that will allow these institutions to continue to function until they unwind these assets. Moreover, the firm knowledge that $750 billion dollars are about to be injected into the system is likely to suffice to keep afloat the financial institutions.
And if this sum is not large enough, instead of increasing the bailout to the banks, let’s up the people’s mortgage reduction vouchers.
Amitai Etzioni is a University Professor at The George Washington University, and the author of The Moral Dimension: Toward a New Economics. He can be reached at comnet@gwu.edu