Before I get into this post, I need to be clear that I am a common sense conservative. I believe America is greatest when it holds to its traditional values. These values include respect for individual initiative, insistence on individual accountability, and the belief that individuals should receive the economic rewards (and penalties) for their decisions. Nevertheless, I also believe that when dangers threaten, we are at our best when we work together to counter the threat. When the neighbors' house is burning, we don't stand by and watch them try to put it out alone.
In this spirit, I applaud yesterday's passage of the Economic Emergency Recovery Act of 2008. Though it represents a massive intrusion of government into the economy (you probably need to go back to Nixon's price and wage controls for anything bigger), it allows the U.S. Treasury to decisively address the strains on global credit markets. Secretary Hank Paulson has vowed to act quickly with this new authority and hopefully, the credit markets will ease very soon.
Even with this legislation, the job is not finished. To carry forward our earlier analogy, the neighbor's house is still burning. Both credit markets and consumers are threatened by this crisis and these threats, in turn, threaten the health of our global financial system. We need to begin thinking about how to help homeowners whose mortgages are unmanageable, many of which are in default now or soon will be.
An interesting idea has been kicked around democratic circles (primarily the pro-Hillary camp) for several months: resurrect the Home Owners' Lending Corp., an entity created by Franklin Roosevelt in the early days of his administration to deal with the massive mortgage defaults associated with the Great Depression. The pro-HOLC arguments are summed up well in an editorial published this last week in the Washington Post. (Click here to read it.) The authors of the editorial are a couple of professors from the Yale School of Management. (An article expressing concern about this idea can be found by clicking here. It is a blog written by a law professor at the University of Pennsylvania.)
Another idea is to allow home mortgage terms to be subject to judicial review in personal bankruptcy proceedings. I know there is a strong conservative reaction against this idea (it came up several times during congressional debate over the Economic Emergency Recovery legislation). Honestly, I don't understand the aversion to it. We allow the terms of other debt to be modified by bankruptcy courts, why not mortgages? Several politicians and academics from both sides of the political aisle has voiced support for this idea. (Click here to read an issue brief on this topic from the nonprofit Center for Responsible Lending.) I expect it will also be part of the political debate going forward.