Some plans for addressing American debt

Proposals for helping Americans struggling to stay in their homes or pay off student loans that are worth a look

Topics: Debt, Student Loan Debt, U.S. Economy, Great Recession,

Some plans for addressing American debt (Credit: iStockphoto/BrianAJackson)

Something has to be done about the debt. Household debt is currently at 90 percent of GDP and unless the powers that be do something to help people out, calls for mass forgiveness will only grow stronger.

Help still isn’t on the way, but I did see a couple of proposals worth highlighting today to actually do something concrete to help people who are struggling.

First, Mike Konczal wrote about student loan debt. A very brief history: Every single law Congress has passed regarding student loans since the federal program was introduced in 1965 has benefited lenders and made repayment or bankruptcy harder for borrowers. In addition to being unfair, this seems perhaps like bad policy, unless we really think it’s best for college graduates to spend their first decade (or decades) in the workforce sending substantial portions of their income to private lenders.

Mike Konczal’s plan is very simple: Just roll back the laws to what they were before 1990. Then, student loans are dischargable in bankruptcy after five years, instead of never.

We are left with a very pressing problem, of course: those who currently suffer under massive student loan debt in the midst of a depressed job market, which is a lot of people. (I still like mass debt forgiveness, but that’s most likely politically impossible.)

That’s addressed by the second part of Konczal’s plan, which is clever: Give citizens the same break we gave major investment banks, which in 2008 were allowed to convert into bank holding companies in order to take advantage of access to the Fed “discount window”:

Why not also do a “deathbed conversion” on those who are suffering under the burden of heavy student debts and low incomes and let them immediately refinance all their student loan rates at the current ultra-low discount window rate? Mass refinance all student loans into the current low rates the financial sector enjoys. This would give the 99% of Americans just a hint of the kind of total government support places like Goldman Sachs have gotten.

In the long term, American higher education (at public schools, at the very least) should be priced as affordably as it is in most of Western Europe, which would require greater public subsidies, but there are warplanes to build and estate taxes to eliminate, so I’m not holding my breath.



In the perhaps more immediately pressing problem of the housing crisis, Reuters’ Felix Salmon is still pushing principle reductions and own-to-rent plans.

In his own-to-rent proposal, banks rent foreclosed properties back to their original owners, allowing people to stay in their homes and pay market rates. “This keeps people in their homes, reduces foreclosure sales, stops houses being trashed when they’re foreclosed upon, and even maximizes the income stream from homes in default on their mortgages,” Salmon says.

Of course, the idea has gone nowhere in Congress. But individuals have simply set up such plans on their own. Meanwhile, wealthy investor Greg Lippman is calling for principal reductions:

“Prominent economists from both the left and the right” are calling for more principal reductions, Lippmann wrote in the letter. Borrowers are 1.7 times more likely to default again after a loan is reworked without cutting the balance, he said, citing a Deutsche Bank report last month.

If institutional investors want something, it is orders of magnitude more likely to happen than when regular people want it, so this is a good sign for Americans currently underwater on their homes.

The more we talk up plans to alleviate household debt, the more likely it is we’ll eventually see something substantial from Congress and the White House.

Alex Pareene

Alex Pareene writes about politics for Salon and is the author of "The Rude Guide to Mitt." Email him at apareene@salon.com and follow him on Twitter @pareene

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 7
  • Close
  • Fullscreen
  • Thumbnails
    AP/Jae C. Hong

    Your summer in extreme weather

    California drought

    Since May, California has faced a historic drought, resulting in the loss of 63 trillion gallons of water. 95.4 percent of the state is now experiencing "severe" drought conditions, which is only a marginal improvement from 97.5 percent last week.

    A recent study published in the journal Science found that the Earth has actually risen about 0.16 inches in the past 18 months because of the extreme loss of groundwater. The drought is particularly devastating for California's enormous agriculture industry and will cost the state $2.2 billion this year, cutting over 17,000 jobs in the process.

       

    Meteorologists blame the drought on a large zone (almost 4 miles high and 2,000 miles long) of high pressure in the atmosphere off the West Coast which blocks Pacific winter storms from reaching land. High pressure zones come and go, but this one has been stationary since December 2012.

    Darin Epperly

    Your summer in extreme weather

    Great Plains tornadoes

    From June 16-18 this year, the Midwest was slammed by a series of four tornadoes, all ranking as category EF4--meaning the winds reached up to 200 miles per hour. An unlucky town called Pilger in Nebraska was hit especially hard, suffering through twin tornadoes, an extreme event that may only occur every few decades. The two that swept through the town killed two people, injured 16 and demolished as many as 50 homes.   

    "It was terribly wide," local resident Marianne Pesotta said to CNN affiliate KETV-TV. "I drove east [to escape]. I could see how bad it was. I had to get out of there."   

    But atmospheric scientist Jeff Weber cautions against connecting these events with climate change. "This is not a climate signal," he said in an interview with NBC News. "This is a meteorological signal."

    AP/Detroit News, David Coates

    Your summer in extreme weather

    Michigan flooding

    On Aug. 11, Detroit's wettest day in 89 years -- with rainfall at 4.57 inches -- resulted in the flooding of at least five major freeways, leading to three deaths, more than 1,000 cars being abandoned on the road and thousands of ruined basements. Gov. Rick Snyder declared it a disaster. It took officials two full days to clear the roads. Weeks later, FEMA is finally set to begin assessing damage.   

    Heavy rainfall events are becoming more and more common, and some scientists have attributed the trend to climate change, since the atmosphere can hold more moisture at higher temperatures. Mashable's Andrew Freedman wrote on the increasing incidence of this type of weather: "This means that storms, from localized thunderstorms to massive hurricanes, have more energy to work with, and are able to wring out greater amounts of rain or snow in heavy bursts. In general, more precipitation is now coming in shorter, heavier bursts compared to a few decades ago, and this is putting strain on urban infrastructure such as sewer systems that are unable to handle such sudden influxes of water."

    AP/The Fresno Bee, Eric Paul Zamora

    Your summer in extreme weather

    Yosemite wildfires

    An extreme wildfire burning near Yosemite National Park forced authorities to evacuate 13,000 nearby residents, while the Madera County sheriff declared a local emergency. The summer has been marked by several wildfires due to California's extreme drought, which causes vegetation to become perfect kindling.   

    Surprisingly, however, firefighters have done an admirable job containing the blazes. According to the L.A. Times, firefighters with the state's Department of Forestry and Fire Protection have fought over 4,000 fires so far in 2014 -- an increase of over 500 fires from the same time in 2013.

    Reuters/Eugene Tanner

    Your summer in extreme weather

    Hawaii hurricanes

    Hurricane Iselle was set to be the first hurricane to make landfall in Hawaii in 22 years. It was downgraded to a tropical storm and didn't end up being nearly as disastrous as it could have been, but it still managed to essentially shut down the entire state for a day, as businesses and residents hunkered down in preparation, with many boarding up their windows to guard against strong gusts. The storm resulted in downed trees, 21,000 people out of power and a number of damaged homes.

    Debbie Arita, a local from the Big Island described her experience: "We could hear the wind howling through the doors. The light poles in the parking lot were bobbing up and down with all the wind and rain."

    Reuters/NASA

    Your summer in extreme weather

    Florida red tide

    A major red tide bloom can reach more than 100 miles along the coast and around 30 miles offshore. Although you can't really see it in the above photo, the effects are devastating for wildlife. This summer, Florida was hit by an enormous, lingering red tide, also known as a harmful algae bloom (HAB), which occurs when algae grow out of control. HABs are toxic to fish, crabs, octopuses and other sea creatures, and this one resulted in the death of thousands of fish. When the HAB gets close enough to shore, it can also have an effect on air quality, making it harder for people to breathe.   

    The HAB is currently closest to land near Pinellas County in the Gulf of Mexico, where it is 5-10 miles offshore.

  • Recent Slide Shows

Comments

0 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>