A Proposed Solution to the Housing Crisis

Part of what I seek to do here is to raise things that aren't being heard enough. As Krugman notes, the current bailout plan looks to be throwing money at some US banks without compensating US taxpayers for the risk they're taking.

What's worse is that this fix might not even fix the problem, because it is not only the subprime loans which are the problem -- it is all sorts of loans. Jason Lindt makes this case, and although I can't vouch for his numbers, he makes it convincingly. He says we should go straight to the problem: banks' insolvent balance sheets. While the current bailout plan looks like a sneaky way to throw money at banks, a good plan should specifically offer capital to these banks by purchasing their preferred stock. This gives them some Tier 1 capital as a cushion, and it also makes them pay us dividends in the future.

I still have questions about this. Sometimes the dividends on preferred stock don't get paid, but then they stack up cumulatively. The Tier 1 capital page says these types of preferred stock don't usually apply to Tier 1 capital. We might need a strange kind of which is more geared towards the long-term, and also gives us voting power in these companies. We need to put these banks on long-term payment plans, because it is going to be a while before they'll be able to pay us back for the mess they've caused.

Incidentally, as to the cause of this, Anton Wahlman notes something I haven't heard before: the effect of the Taxpayer Relief Act of 1997, which exempted profits on personal residents from taxation. That law likely contributed more than the Community Reinvestment Act bullshit, which has been refuted.