Bond guru Bill Gross’s suggestion that we need a zillion-dollar federal bailout for homeowners who are having trouble paying off their mortgages is generating all sorts of talk in the econoblogosphere. No one seems to entirely buy Gross’s notion that we need a “Reconstruction Mortgage Corporation” that would presumably buy up troubled mortgage securities and whisper sweet nothings into the ears of borrowers who can’t make their payments, but the idea that Congress and the president–and not just the Fed–ought to do something to help America’s homeowners isn’t being dismissed out of hand.
NYU economist Nouriel Roubini has a good roundup of the arguments in favor of doing something, concluding that “political issues lead to fiscal solutions when there is a political consensus that the consequences of no action can be a severe economic and social fallout from the worst U.S. housing recession in decades.”
His former employee Felix Salmon Yves Smith has a smart take on the arguments against, one of the main ones being that no one really knows yet if the “economic and social fallout” from the mortgage mess will be all that severe. He also offers some interesting alternative approaches, all of which are too complicated to summarize here (or at least I’m too lazy to summarize them).
I don’t know who’s right, but my natural tendency is to side with the skeptical (that is,