How would the government have capacity to do this? It's much easier to just purchase bundles of mortgage backed securities. From the moral hazard standpoint, I think they were worried more about the lenders rather than the lendees. Under this arrangement, even the shadiest of private lenders get rewarded. Under TARP, at least it was just banks that got bailed out, and they could buy the MBSs at a discount.
> How would the government have capacity to do this? It's much easier to just ...
I don't find the argument that "it's hard to track and manage that" valid or compelling for an organization which includes the IRS as one of its constituent parts.
Actually paying portions of mortgages would both keeps the banks solvent as well as keep the people capable of pulling through with assistance from taking the burden of the problem because of what might be temporary issues (a recession and lack of work). It's a much more market based solution than "throw money at banks", in that it doesn't subvert the market entirely, just supplements it.
They would still need to allow people that had no hope of paying their mortgage to lose their homes, and something different might be needed for that to keep that subset of the problem space (which might be a large subset, a lot of lenders were fudging number to get people into homes they couldn't afford) from still causing things to spiral out of control, but there was no guarantee that the first part of TARP was going to be enough either, so it's not like "the situation needs to be closely monitored for future needed intervention" wasn't an assumed part of any proposed plan.
>I don't find the argument that "it's hard to track and manage that" valid or compelling for an organization which includes the IRS as one of its constituent parts
Doesn't this article highlight what happens if you haphazardly throw together a complicated relief effort overnight? The money ends up in the pockets of the rich anyways.
>Actually paying portions of mortgages would both keeps the banks solvent
Exactly, which is part of the problem I'm highlighting. Under this arrangement, the lenders and mortgage backed securities holders don't get punished at all. If the homeowners get to keep the their home, that means the lender gets everything that they asked for. If the homeowner receives government assistance and loses their home anyways, the lender still ends up with government money. Lenders are literally getting rewarded for their reckless lending.
Presumably with TARP, the Treasury negotiated the purchase prices with the banks to make sure that they were punished, but not so much they'd collapse.
At some point you have to figure out how to make the best tasting lemon drink you can out of the lemons you have. Making sure the rich don't get the money is less important to me than making sure the poor and less than rich actually get good outcomes. There's a word for punishing people even if it hurts you and in a way that could be avoided. It's called spite. We should care about helping the poor, and if possible, in a way that's not overly generous to those that don't need it. But we shouldn't be afraid to help the poor just because it also benefits those we deem not worthy.
It's a somewhat subtle but I think very important distinction that needs to be considered in these discussions of the rich benefiting in these instances. It's almost impossible to prevent people other than those targeted from benefiting, and those with the most flexibility (which comes with money) are those most likely to be able to take advantage in some way of programs not aimed at them (if you help people in poor physical health by supplying money for physical therapy, companies that offer that service will benefit). Trying to prevent that at the expense of the people you're trying to help is not beneficial to anyone (especially since economically the input resources and output outcomes are not always linearly related).
