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So, the undisclosed, tightly-kept-secret mountains of toxic assets simply cannot be bailed out. Not only will the efforts to do so fail, they are also bound to drain public finance, accumulate national debt, weaken national currency, and prolong an economic crisis.
By contrast, the homeowner-centered alternative would have a number of advantages. First, and foremost, it would help citizens facing the specter of homelessness stay in their homes by allowing them to pay affordable mortgage installments based on reduced or realistic home prices.
Not only will this method of asset evaluation (called mark-to-market assessment) rescue the vulnerable homeowners, it will also cost taxpayers much less money than bailing out the enormous amounts of the Wall Street gamblers' phony assets.
Furthermore, this solution would also allow the government to gradually recover the market-based home prices it would be paying the failed commercial mortgage holders in order to replace them as the new mortgage holder.
By cleansing the market of the dead weight of tons of junk assets, and allowing threatened homeowners to pay affordable mortgage installments, this bottom-up solution would also help restore faith and trust in the financial system and the credit market--thereby also mitigating the liquidity crisis.
Ismael Hossein-zadeh, author of the recently published The Political Economy of U.S. Militarism, teaches economics at Drake University, Des Moines, Iowa.
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