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What's the Big Idea?
Bolster Fannie and Freddie
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Who's Blogging  |
The Thinker: Carl Goldsmith, chief investment officer of Berkeley Capital Management
In Action: Goldsmith said he is "fuming" that the government has spent billions of dollars trying to avoid foreclosures but has not managed to encourage home purchases. "We are failing to address the demand deficiency," he said. "There are many, many potential buyers out there, but they are afraid. Therefore it is important that we initiate some programs to bring the demand curve up."
A full nationalization of Fannie and Freddie -- going beyond the $200 billion the government has invested in them -- is among Goldsmith's ideas. Doing so would let them borrow at the same rates as the U.S. Treasury, helping set mortgage rates at pretty much whatever level could boost sales -- say 4 percent. Employing this strategy for a year could get momentum going for a housing recovery, Goldsmith said.
Downsides: Nationalization could have negative consequences for the federal balance sheet. The government would need to take on about $5 trillion of mortgage-backed securities, most likely damaging its credit rating. Goldsmith acknowledges this flaw but says: "It's a matter of semantics. When push comes to shove, who is going to back up those loans, anyway? The feds. We all know that."
Social Security Income for All
The Thinker: Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College
In Action: Papadimitriou also wants to encourage growth through consumer spending. By suspending worker Social Security contributions, he said, the government would effectively boost employees' take-home pay and pump billions of dollars each week into the economy. Workers, he said, would feel like they had a better handle on their household budgets, helping boost confidence in the economy. Consumers could spend money on products or services but also pay down debt.
"When you increase take-home pay, it really gives people the opportunity to spend," Papadimitriou said. Under his plan, contributions to Social Security wouldn't pause; they would just come from the federal government's coffers. Companies would continue making contributions.
Downsides: Over six months, the plan could cost hundreds of billions of dollars. Even the perception of a shortfall in Social Security coffers could prove politically untenable. Also, there is no way to know whether people will spend the money responsibly. And many economists, again, think encouraging people to spend rather than save is harmful over the long haul. What if someone pays off his credit card using the extra money, only to then fill it up again?
