The Trickle-Up Economy
Jonathan Cloud October 1st, 2008
We are currently living through the worst financial crisis since the great depression. This is a result not so much of a failure on Wall Street as a failure on Main Street in terms of the subprime mortgage mess. Mortgage brokers, many of them very local businesses, wrote no-doc loans for eager buyers and placed them with banks and finance companies, who in turn re-sold them to other lenders and institutional investors in “bundles,” which these lenders resold to private investors in the form of fractional securities.
Most of these loans were to people who needed a home. Although at the end of the real-estate boom many homes were being bought by speculators, the majority of the loans were issued to people who just qualified for them within the guidelines being used at the time. Once these loans adjusted, these families could no longer afford the homes; and currently two million of them are being forced out, having lost their deposits and their payments into their new houses.
If the government guaranteed these loans, instead of buying the “toxic assets” from the financial sector, there would be no toxic assets to worry about, and these two million people would continue to live in their homes – they would just owe some money to the government as well as to the mortgage company, which might be deferred or adjusted according to their income. In other words, if the government “bailed out” lower-income homeowners, it would not have to bail out the Wall Street financiers who have brought about their own demise by “slicing and dicing” these mortgage-backed securities, and developing further esoteric derivatives of highly dubious value based on them.
What we need is not trickle-down economics but a trickle-up economy – which some folks have recognized is the only kind of economy that is sustainable anyway.