After fumbling around with TARP (Troubled Asset Relief Program) for too long, attention is finally returning to the fundamental weakness creating and sustaining our current economic woes, mortgages that people cannot afford on homes of insufficient value to provide adequate collateral for those mortgages. The plan that everyone is looking at now is one proposed by FDIC Chairperson, Sheila Bair, to modify non-GSE mortgages that are past due already or projected to become delinquent by the end of 2009. The basics of the proposal call for the government to cover servicing expenses and to share losses if the modified loans subsequently default anyway.
While efforts to address a core vulnerability of the economy must be applauded, this plan like so many others strike me as just another typical bureaucratic response. After all, the goal of any bureaucrat is job security. This is a splendid plan to keep all those operatives in the Treasury Department and FDIC busy for years. There are eligibility requirements to review, tests to be applied, reviews to be conducted, rules to be drafted, standards to be applied, reviewed, revised and then re-applied, re-reviewed, revised again, ... etc., etc., etc.
Why are we not talking about a plan like the one suggested by Drs. Hubbard and Mayer of Columbia Business School as summarized in the October 2d Wall Street Journal (I wrote about it in this blog on October 8)? The elegant simplicity of that plan obviously makes it unworthy of examination. I guess that since the Hubbard and Mayer plan does not involve an army of eager government operatives to administer it can't work. I fear that, despite good intentions, we are on the wrong path again.