The No-Nonsense Bailout

$50 Billion in Cash Headed for Paid-Up Homeowners

by Scott Ott for ScrappleFace · 120 Comments

(2009-02-17) — Treasury Secretary Timothy Geithner this week will unveil a plan to address the nation’s housing crisis by making $50 billion in direct payments to the 91 percent of homeowners who currently pay their mortgages on time.

The plan is an 11th-hour revision of the original scheme which would have allowed government-backed renegotiation of loans between banks and delinquent or foreclosed homeowners.

“We want to invest in what works,” said Mr. Geithner. “It suddenly dawned on me that rewarding people who bought more house than they could afford, and backing banks that made risky loans, would just throw good money after bad. But the vast majority of Americans make sensible mortgage decisions, so when we put cash in their hands they’ll use it in ways that will reinforce a sound, sustainable economy.”

Only about nine percent of mortgages are delinquent or in foreclosure, Mr. Geithner noted.

“The best thing for these folks is to get them out of the McMansions and into modest homes or rental units they can afford,” the Treasury chief said. “If we bail them out now, then we just send a signal to the banks that Uncle Sam stands behind every foolish, risky or evil thing you do. We would effectively nationalize the banks while subsidizing people who think the American dream is a birthright payable upon demand.”

Asked by a reporter why the federal government should get involved at all, taking out a $50 billion loan to try to stabilize credit markets, Mr. Geithner said, “We’re just following the great Democrat example of Franklin Roosevelt during the Depression.”

“FDR knew that it doesn’t matter whether what you do will work, or even make sense,” he said, “What matters is that people think you care, and they see you doing something. Borrowing money against future tax receipts is something we can do, and we do it well.”