Tuesday, October 07, 2008

Questions for the Candidates

Here's a good one from Joe Stiglitz:

"More than a million people have lost their homes in the past two years. A million more are expected to lose their homes in the next 12 months or so. Do you support a more direct program of relief for homeowners? The government pays more of the mortgage costs of rich homeowners, through larger tax deductions, than of poorer homeowners. What would you do to correct this injustice?"

In my fantasy world the answer would be to phase out the mortgage interest deduction.  The benefits skew highly towards the rich, encourage people to buy houses that they otherwise could not afford, or buy more house than is necessary which negatively impacts the environment.  However, I don't see this occuring in the immediate future.  I do think in a couple years, if we weather the present storm, tax reform will undoubtedly be on Congress's mind.  A partial phase out of the interest deduction with an unreasonably high cap that is not indexed to inflation ($500k) might be saleable.

"The existing capital standards for financial companies helped create the illusion that risky assets were “safe.” A reformed system could mandate more capital, to support incremental risk-taking, during a boom and lower such capital requirements in a bust. By changing capital cushions over credit cycles, banks would be less likely to be forced into asset fire sales. Would you support such a change?"

Arnold Kling has been advocating capital forbearance as a possible solution to the credit crunch, and I like Hubbard's twist on making it counter-cyclical.

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