Today marks the third anniversary of Congress approving the Troubled Asset Relief Program (TARP), the $700 billion bank bailout passed at the height of the financial crisis in 2008. TARP, for all its warts, saved the financial system from collapse. However, similar efforts have not been undertaken to rescue those who lost their jobs, savings, and homes due to Wall Street’s malfeasance. The 2009 Recovery Act was not big enough for the task at hand, while federal anti-foreclosure programs have fallen flat.
TARP’s anniversary coincides with the third week of protests on Wall Street (which have since expanded to several other cities). It’s perhaps fitting then that several economists are calling for “massive debt relief” as a way to help lift the economy, as ballooning debt (student and otherwise) is one of the issues galvanizing those who have occupied Wall Street:
Some economists are calling for a radical step: massive debt relief.
Federal policy makers, they suggest, should broker what amounts to an out-of-court settlement between institutional bond investors, banks and consumer advocates — essentially, a “great haircut” to jumpstart the economy.
What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.
“We’ve put this off for too long,” said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. “We need debt relief and jobs and until we get these two things, I think recovery is impossible.”
As Reuters reported, economist Stephen Roach has called for “Wall Street to get behind what others have called a ‘Debt Jubilee’ to forgive excess mortgage and credit card debt for some borrowers.” Roach said debt forgiveness would help the economy get through “the pain of deleveraging sooner rather than later.” “For their part, bondholders need to understand that we’re not earning our way out of this mess and should eat losses now before they get nothing,” added economic analyst and financial blogger Barry Ritholz.
As the American Independent put it, “debt forgiveness ideas have been swirling since the recession began.” It’s worth taking a moment to bring those ideas back up, three years after the banks received a bailout of their own.