First, even if we can work away at the mortgage crisis, we still have a huge problem with credit card debt. IMHO, we need a national usury law-the current state-by-state approach leads to a classic “race to the bottom” with lenders consolidating operations in states with no regulation. For borrowers, the result, once they fall behind, is essentially credit card sharecropping.
I would also, if I were an incoming presidential adminstration, revive notions of unconscionability in credit contracts-the pages of fine print where borrowers agree to arbitration of claims with the NAF (see Business Week critique), and promise never to sue the lender or participate in any class actions-in my view, gone.
Credit card issuers will claim, with some justification, that these steps will result in fewer consumers getting credit cards and in lower credit limits. I think this is right, but will happen anyway. The question is how we want this to happen-in an orderly manner that benefits people, or a rush that benefits banks at the expense of people.
I also think we ought to consider strengthening the social security safety net. I would eliminate the cap on wages taxed for Social Security (in 2008, $102,000). People earning more than that amount can afford to continue to pay into Social Security so their relatives and others don’t end up having to eat cat food during retirement. Strengthening citizen confidence in the safety net could be a useful step in restoring confidence in the economy as a whole.
Right now, I think Obama has much the better of the debate on what to do going forward. Unfortunately, the financial crisis is likely to eat up much of the available money for his more constructive efforts in health care and education. His repeal of corporate tax breaks and the Bush tax cuts for the wealthy are extremely important for any measure of financial stability.
Also unfortunately, the crisis is likely to have a severe impact on state budgets and state priorities. It’s going to be ugly, so it’s time to get as creative in ideas to bail ourselves out as Wall Street was in creating the problems that caused our collapse.
is smart–but do you mean “the next big bailout,” or “the next big installment on the current bailout?”
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p>Your ideas have merit (and how!) but do not address the latter.
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p>As for the former, consider. Big bailouts have their roots in decision and events that precede the crisis by years.
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p>The S&L crisis of the 80s followed a policy of regulatory laxity under Reagan.
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p>The bailout of utility companies in the 90s was about billions of dollars of imprudent power-plant investment and debt, some incurred decades earlier.
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p>The current financial crisis is a result of deregulation of the securities industry eight years ago.
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p>Learning from that history, I suggest that the next big bailout–distinct from the current crisis–is still just a gleam in some lobbyist’s eye. I don’t know what it will be, maybe a quarter trillion in nuclear-power-loan guarantees?
After this afternoon’s vote, I think it’s the next big installment on the current bailout. The question now, I think, is how to construct a financial aid package that (1) goes straight to borrowers, rather than Wall Street, and (2) creates a legal structure that would deter future houses of financial cards.
there are plenty of alternative bailout plans.
the next bailout isn’t credit cards, it’s state and local. Look at Massachusetts, arguably one of the healthier state economies:
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p>Tax revenues higher than any year in history, yet facing 9C cuts.
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p>Entitlements naturally increasing
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p>Pensions funds underfunded
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p>Public Union wages naturally increasing
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p>A debt-per-capita higher than any other state in the US (except Alaska, and it’s got oil).
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p>So, what’s going to happen when i) capital gains tax collections drop to zero, as they will this year–fallout from Wall Street, and what happens ii)IF consumer spending drops and the requisite drop in sales/use tax and new car excise iii) IF personal income and corporate collections drop. iv) IF unemployement spending increases.
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p>Add too, the extraordinary government borrowings, Mass turnpike on the edge of insolvency, rising government spending.
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p>short term borrowing costs are presently very high, and, although mid and long term borrowing is cheap, all it takes is a downgrade or two, to dramatically increase the Commonwealth’s borrowing costs.