An alternative plan from Pasadena rep Adam Schiff

Our Pasadena representative has another plan for handling the economy he is hoping to help into place (Schiff is still in Washington D.C. today, unlike most other representatvies). We published an editorial on the plan in today's paper. Schiff spends a lot of the editorial explaining his 'no' vote, something we reported on yesterday, but I find it more interesting to hear about what he is proposing instead:

Here's what I think we should be doing instead: To deal with the credit crisis, raise the cap on FDIC insurance of banks and credit unions, so that Americans know that whatever money they have in the bank is safe and backed by the full faith and credit of the government. This would stop people from withdrawing money from community institutions, and free up lending to small businesses. The Department of Treasury essentially did this with money market funds, and is helping to restore confidence in that sector. Next, instruct regulators to stop requiring financial institutions to mark down their mortgage-backed securities to market value, and give them time and assistance in working out their capital and liquidity problems.

Most important, we must confront the epidemic of foreclosures by establishing local home loan corporation boards or some other mechanism to help homeowners restructure their mortgages over longer or different terms so that we can stem the tide of foreclosures. And we should enact a strong stimulus package directed at the local economy, putting people to work, restoring purchasing power and improving home values.

This approach - starting with the local community and working up, rather than bailing out Wall Street and working down - far more directly addresses the underlying ills and puts far fewer taxpayer dollars at risk. I believe it would be every bit as reassuring to the markets as the Paulson plan, and do more to deal with the root problem. It would also save countless billions of taxpayer dollars on the front end, so we have the resources we need to deal with the additional problems that are most certainly heading our way.

I think he makes a good point that we have lost sight about the base problem behind this financial crisis: people can't make payment on their home loans. I can't remember the last time I read extensive reporting on what congress/state/local governments are doing or not doing to deal with that fundamental issue. I'm actually looking at a couple of things that Pasadena is considering, and looking to get something in the paper over the weekend- obviously, though, any plan a city can put into place would be much stronger if it had some sort of federal backing.

Also, as I understand it, we are still looking at millions more foreclosures happening in the near future, so it seems like even if we neutralize lousy mortgage-based securities now, there are only going to be more shocks to the system later on as more foreclosures happen- wouldn't it make sense to try and stop them in the first place?