vendredi 27 septembre 2013

What if the bailout was reversed?

I was reading Paul Krugman's column today, and this paragraph set me off on a new train of thought:




Quote:








The thing is, by and large, the wealthy have gotten their wish. Wall Street was bailed out, while workers and homeowners weren’t. Our so-called recovery has done nothing much for ordinary workers, but incomes at the top have soared, with almost all the gains from 2009 to 2012 going to the top 1 percent, and almost a third going to the top 0.01 percent — that is, people with incomes over $10 million.



http://www.nytimes.com/2013/09/27/op...ecuted.html?hp



What if the bailout had been reversed? I.e. we bailed out the homeowners, rather than AIG, Wall Street banks, Freddie Mac and Fanny Mae, and even the auto manufacturers?



Everyone seems to agree that there was a housing bubble that triggered the finnacial crisis. Housing prices had gone too high to be sustainable, they had to come down. But what if we had tightened borrowing requirements, let the prices come down slowly, and bailed out the people with underwater and / or unaffordable mortgages? Would this have trickled up to save the lenders / banks / insurers without percipitating a global finnancial crisis? Would not everyone have been better off, perhaps at lower cost?



I can forsee the objections: That would just be rewarding bad behavior, but that is exactly what we did with the banks, AIG etc.



I would love to hear the thoughts of some of you with more knowledge of Economics than I have.



IXP





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