Jed Graham, who covers economic policy for Investor’s Business Daily, has been writing occasional how-to-fix-the-mortgage-market essays for RGE Monitor since last fall. His most recent (it’s about 10 days old, but who’s counting?) begins:
Treasury Secretary Timothy Geithner’s toxic asset plan is a brilliant, highly complex and very expensive answer to the wrong question: How we can raise the value of bank portfolios without improving the quality of the underlying loans?
It is truly remarkable that an administration that preaches progressive economics intends to deploy $1 trillion – including hard-to-value but nevertheless very pricey subsidies – to help banks in a way that avoids helping their existing borrowers. …
The biggest cost of the Geithner plan may be the missed opportunity to deploy these resources in a way that gets at the heart of one of our economy’s central problems – an excess of mortgage debt based on now-fanciful home values.
What’s needed, Graham argues, is “a broad and proactive restructuring of the excess of private debt that continues to drag down the economy.” There’s some of that going on, in the form of bankruptcy proceedings and the Obama administration’s newish mortgage plan. But not nearly enough, in Graham’s view.
I think he’s right about this. What we’re confronting, as the Economist’s Free Exchange blogger puts it, is more a balance sheet crisis (as in everybody’s balance sheets) than a banking crisis. So why aren’t we spending more time (and money) on the balance sheets than on the banks?