Shared Responsibility For the Mortgage Crisis

Over at the Huffington Post [1], market analyst (and 1990s dot-com bubble puffer [2]) Henry Blodget asks the inevitable conservative question [1] about the mortgage meltdown:

...in what universe is it fair and right for the government to single-handely change the terms of loans negotiated between two willing parties simply because those loans haven't worked out so well for one side?

Specifically, why should banks be forced to cut strapped homeowners a break? Why should the rest of the country's homeowners, who didn't willingly take out mortgages they now can't afford -- or who didn't buy houses -- be forced to subsidize the dice-rollers who did?

Rev. Jesse Jackson has the answer.

He was interviewed on Democracy Now [3] this morning, before today's RainbowPUSH "Save Our Homes" rally on Wall Street. [4]

...Wall Street had a role to play in the subprime lending scheme, and they then loan not to people, but they loan to the predators, who then—the brokers, who then sell to the people...

...without government regulation of the banks, without transparency, it was open season on the people.

And so, the government has a role to play, because its lack of diligence allowed the banks to run amok to get these fast profits.

My only quibble with that is: we must remember that "the government" is "our government."

The government is us. The fabric of democracy may be seriously frayed in the Bush Era, but at its core, we pay for our government, we staff it, we direct it, we take responsibility for it.

Not only is there shared responsibility for the failures of our government to set responsible rules of the road, there will be shared economic pain if we fail to step up.

On Friday, TPMCafe's Elizabeth Warren [5] offered some insight (spotlighted today by Paul Krugman [6]) on what could be done for the overall economy:

Bankers evidently dislike [congressional] bankruptcy proposals because they give borrowers some real power: they can write down the mortgage to the value of the property, and they can rewrite the mortgage into a fixed instrument. "Voluntary," according to the banks, is much better.

Of course, if the bankruptcy laws changed, the negotiations outside bankruptcy would change too. If families had the option to declare bankruptcy and cut the mortgage down to the size of the property, some mortgage servicers might start returning homeowner's phone calls and talking over other options.

Bankruptcy can't fix the whole subprime problem, and it is not a perfect solution even for those who would be helped ... families have to be in really bad shape to go bankrupt, and many will resist either because of the stigma or because they won't qualify for relief.

But bankruptcy could help some of the families hit hardest. It would also move this crisis through the system faster.

If a bankruptcy court determines that the family can't afford the home even with a decent mortgage, then they will have to give it up.

A bankruptcy amendment will not put off the day of reckoning. It will help move toward a more stable (and more realistic) housing market faster.

That's the benefit of taking shared responsibility for an nationwide problem: re-establishing rules of the road, reducing broad economic pain in the short run, getting our economy back on firm footing.

But as both Krugman and Warren note, Bush's empty gesture last week was to give the illusion that the crisis is being addressed, and -- quoting an anonymous lobbyist -- "sandbag the bankruptcy stuff."

That's irresponsibly putting the special interest ahead of the public interest.

Which is what Washington conservatives do.