January 29, 2008
Sub-Prime Solution?
Posted by Renee Jones

With all the talk of write-downs, bailouts, and stimulus packages, I came across this op-ed column in the Boston Globe by Robert Kuttner that offered a refreshing approach to the current crisis.

Kuttner says the economic threat posed by the sub-prime crisis comes from within the housing sector, and the solution must address that sector as well.  He proposes a New Deal-style solution:  a new government agency that would buy up bonds backed by distressed mortgages and then refinance those mortgages at lower rates.  With lower rates, homeowners who can't afford their sub-prime loans could keep their homes and vacant homes could be purchased by new owners with mortgages financed by the new federal agency.  Funding for the agency would come from issuing tax-exempt bonds. According to Kuttner many housing experts support the approach, but few politicians do.

On a first read, this sounds like a sensible proposal that could have a more direct impact than mailing checks to taxpayers some time within the next few months.  I wonder if others have analyzed with this proposal?  If so, what are its flaws?

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