The Paulson Bailout Plan: A Profiles in Courage Moment

This may be the most important vote since the authorization of the Iraq war, and in many respects, the atmosphere is similar. Congressional leaders have been churned up by a worsening economic picture and the drama of last Thursday’s emergency meeting with Henry Paulson and Ben Bernanke, where lawmakers were told there was a serious risk of massive failures within days and that casualties could go beyond the banking industry to large “brand-name companies.” Senator Christopher Dodd described it as “as sobering a meeting as any of us have ever attended in our careers here.”

Furthermore, this is an election year, and Congress is set to go home and resume campaigning at the end of the week. So a plan to save the economy and bailout the financial firms that got us into this mess will be hammered out very hastily in the heat of emotion. And, like the Iraq war vote, decisions made this week will haunt us for years.

The amount of money at stake is staggering. $700 billion is more than the cost of the war in Iraq to date, more than the entire 2009 budget for medicaid and medicare, more than the 2009 budget for social security, and just under the 2009 military budget. It represents $2000 for every man, woman, and child in the country--above and beyond what we already pay for the actual services of the federal government. And for what? To keep us all from being damaged even more than we have already by the irresponsible business practices of the financial industry we are bailing out.

The great majority of our leaders failed us in the Iraq authorization vote. They made political decisions based on the emotion of the moment. Let’s hope they do better this time. If this deal does not go far enough to reign in the unfettered business practices that got us here, then our leaders must have the courage to walk away. This time, the administration cannot be given a blank check. The deal must provide strong oversight and powerful safeguards against future crises, or we must be willing to say, “No deal.”

Homeownership & the American Dream

Home ownership is perhaps the most tangible symbol of the American Dream, but in recent years it has been oversold. Many people who later wished they had remained renters were sold enticing low-interest mortgages. Thanks to an economic downturn, insufficient regulation of the mortgage lending and mortgage investment industries, and good old fashion overconfidence in the security of real estate investments, many of those same people are now headed back to rented dwellings, but too often their path will run through foreclosure.

As the graph below suggests, the US experienced a rapid acceleration in home purchases beginning in 1992 and topping out at 69 percent in 2003. Since that time the rate has declined to the present 68 percent, and it may drop further. Recent history suggests the line may have been pushed up too high, and the current economy is making a correction.

There is no reason why the American Dream should be dependent upon home ownership. Internationally homeownership rates vary widely and are not particularly tied to standards of living. For example, Germany, a country that enjoys a standard of living (measured in GDP per capita) of $23,819, has a homeownership rate of 42 percent, whereas in Slovenia (GDP per capita of $19,200) 82 percent of people own their homes. Several of the countries of old Europe (e.g., France, Denmark, Austria) have homeownership rates that are over 10 percent below those of the United States.

Owning your own home is a greater financial risk than many thought, and too much risk can make the dream—when defined as owning your own home—a bad bet. But happiness and security can come in different shapes, and life in a rented home can be just as happy as life in a mortgaged home.