Luigi Zingales is in today's economic lesson. His idea is that there is a private solution to the problem with mortgages. The answer, which Tom Keene considered brilliant, is debt for equity swaps.
Zingales' idea is this. You look for all of the mortgage holders by zipcode whose housing price has declined 20% or greater. Instead of them defaulting, they work out an agreement with the originator that reprices the mortgage with the provision that 50% of the profit from the sale of the house goes to the originator. Simple.
It allows the mortgage to be recalculated therefore lowering monthly payments, keeps the individual in their house, keeps people with a lot of equity from taking advantage, and doesn't involve any taxpayer money. Of course there will be no politicians to champion it because there's no end in it for them. It doesn't allow them to take any credit, spend any government money, raise or lower taxes.
Zingales also noted that the decision by the FDIC to insure all bank debt going forward for 3 years will cost the government 150 Billion. I figured this was coming. But almost nobody talked about what the FDIC has been doing - it required no Congressional oversight.
Finally Zingales zings the Paulson plan for saying one thing (the wrong thing) and then doing the right thing. He sees it as a logical consequence of the current Administration having too many friends on Wall Street and not enough in the international academy of economists. I agree.