Underlying the financial crisis is bad mortgages. There are bad mortgages because housing prices have plunged, especially in South Florida, California, Arizona, and Nevada, and Rust Belt cities.
My thinking is that instead of simply spending taxpayer resources to bail out the financial industry, let’s find a way to move a long-term liability off the books at the same time.
One major federal liability is having to pay for damage from floods. The government is spending billions to reconstruct New Orleans and other Gulf areas, and the money will just have to spent again when a Category 5 storm hits, as it will eventually. And it seems like every decade or so, the Mississippi floods and the government winds up paying for that, too. Not to mention the homeowners with beach houses all along the hurricane-prone East Coast.
So the government could use the money it would otherwise use to bail out the financial industry instead to pay people to abandon their flood-prone communities. The condition would be that they have to buy a new house in one of the markets noted above. The taxpayers get off the long-term hook for New Orleans and the like, the newfound demand props up the housing market, and the government doesn’t get any more involved in the financial market than writing checks to migrants from flood-prone areas.
I’m sure that Obama and McCain will jump on this proposal immediately.