Banks and other financial institutions need capital to replace losses incurred when they bought real estate mortgages that collapsed.
Homeowners need capital to replace losses incurred when they signed real estate mortgages for values that collapsed.
The United States Congress is bailing out the bankers but not the homeowners. Why? According to the Wall Street Journal 10/1/08, “A chorus of business leaders and trade groups urged Washington to enact a financial markets rescue plan…. General Electric Co…Verizon Communications Inc…Microsoft…AT&T…Caterpillar Inc…The Business Roundtable…”
Here is a fair question. Who was lobbying for the homeowners? If the US government will buy the mortgages from the banks, mortgages that may or may not prove to be worthless, why not credit each homeowner with his/her share of the bailout to reduce the mortgage and avoid a foreclosure? The banker gets the money, the homeowner stays in the home, and the politician gets wisdom, all for the same amount of money.
Wouldn’t that be fair? Wouldn’t that satisfy two political constituencies instead of one? Why should one end of the failed transaction be subsidized and not the other? Is it because one has political clout and makes campaign contributions?