Planning Our Way Out Of The Mortgage Mess

Writers would love for the smart planners to get together and figure out a government solution to the credit crisis.

After all, it worked for New York in 1975 right? Democrats and Republicans, business and labor, all sat down and made some compromises…

When a country goes to war it starts planning centrally right?

So why not follow that logic into our peacetime problems?

Gretchen Morgenson writes:

AS the great American credit crash continues to reverberate, we still have nothing that resembles an intelligent and comprehensive plan for dealing with mass foreclosures and the economic consequences associated with the debacle.

Democrats in the House passed two bills on Thursday that would have the government insure up to $300 billion in mortgages to help homeowners avoid foreclosure. It would also provide $15 billion to states to buy and renovate foreclosed properties. Prospects for neither bill are bright; the White House has promised to veto both.

Even as the housing crisis deepens, it has become fashionable to argue that the markets should be allowed to fix the problem. Doing nothing is preferable to a Washington solution, the argument goes, because lawmakers so often compound the problems they set out to solve.

And so we drift, with the usual ideological battle lines drawn. Liberals want to help borrowers, and conservatives decry anything that smacks of a bailout. Foreclosures, meanwhile, could reach 2.5 million this year, and house prices continue to fall.

Yes, this problem is maddeningly big and complicated. But America is full of smart and caring people; surely there exists a handful of wise men and women who can stow their axes and their differences to right the ship.

To that end, I spoke with Felix G. Rohatyn, the financier and former ambassador to France who is vice chairman of Lehman Brothers. A central player in the 1975 plan that saved New York City from bankruptcy, he seemed a good person to consult on how to approach the foreclosure mess.

The solution back then was to create an entity called the Municipal Assistance Corporation that raised money selling bonds backed by sales tax receipts and stock transfer taxes. The goal was to revive the city’s economy while balancing its budget. It worked. A few years later, the budget was balanced and New York was back on its feet.

Every crisis is different, of course. And the one that pushed New York City to the brink was considerably smaller than today’s. The city had $12 billion in debt outstanding, and the upheaval was regional, not global.