It Must Be Homes And Investment

We are in a world of hurt right now economically. Job losses are increasing, and I predict we'll go an entire calendar year without one month of gains. This will likely lead to more foreclosures in the year ahead, as restructuring and refinancing isn't going to help the unemployed. Consumer spending will plummet and the holiday shopping season is probably going to be bleak, though some disagree. Most unnerving is the looming crisis in credit card defaults, because that's really all that workers who can't take equity out of their home and whose wages are flat have left to keep up with rising costs.

The question is what we do about this. Perhaps this plan from the FDIC chair will help.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the same Senate panel that the government needs to do more to help tens of thousands of home borrowers avert foreclosure, including setting standards for modifying mortgages into more affordable loans and providing loan guarantees to banks and other mortgage services that meet them.

"Loan guarantees could be used as an incentive for servicers to modify loans," Bair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."

The FDIC is working "closely and creatively" with the Treasury Department on such a plan, she said.

As I said, recently unemployed folks aren't going to be able to refinance. And the loans have been so securitized that you'd have to negotiate on multiple fronts just to cover every piece of the mortgage. But if they can make it work, this is very desirable. The cost to the greater economy of a foreclosure, both in upkeep and falling home prices in the immediate area et al, is close to $250,000. If there are likely to be a million foreclosures next year, you're talking about a number approaching that of the bailout package. We have to do something to get homes under control. Keeping people inside them, too, is both an economic and a moral imperative.

The other thing we must do is public investment, in infrastructure and job-creating engines. The neo-Hooverites in the media who are proscribing belt-tightening during a recession are writing up a recipe for disaster. Republican allies to such a "head in the sand" approach include Saxby Chambliss and Norm Coleman:

“I would be very cautious if a stimulus plan becomes another excuse to simply spending more dollars,” the Republican senator said in an interview after a campaign rally Tuesday in Bemidji.

These two need to be defeated. It's totally absurd to advocate for austerity budgeting at this time. It threatens a longer and deeper recession than we've ever seen in our lifetimes. The government has the ability to step in where private investment can't to provide stimulus that CREATES, whether it's jobs or infrastructure or a move to a green economy. Speaker Pelosi is talking about freezing Bush out of the measure and waiting for a new President, and she should. But immediately thereafter, we need a serious stimulus (more than she's willing to admit, actually).