Pretty soon you’re talking real money

There are about 7.5 million subprime mortgages floating around in the USA right now. These are at the root of the current financial crisis, for which Paulson has proposed a $700 billion bank handout bailout.

Note that he wants to give the money to the banks. After the banks get that money, the borrowers are still going to be in default.

I realize the situation isn’t as simple as this, but just for grins, let’s attack the problem from the other end. The bailout amount works out to a little over $90,000 per subprime mortgage (not all of which are in default, but let’s include all of them anyhow). Imagine if the government forced the banks holding all those toxic loans to rewrite them as fixed-rate mortgages at reasonable rates, and set up what Republicans like to call a “personal account” for each homeowner with a subprime mortgage. Stick that $90,000 in the account, let it accrue interest, and use the principal and interest to supplement the amount that the homeowner can pay. Suddenly the mortgages look a lot more viable to the banks, which would restore liquidity to the market. And people don’t get thrown out of their homes.

I’m sure there’s a perfectly logical reason why this kind of welfare is bad, but the kind of welfare Paulson wants is good.