Opinion: The People Must Be Bailed Out First to Really Save the Economy

Nearly one third  of Americans who rent their homes, or 13. 4 million people, did not pay their rent between April 1 and April 5 this month.

Requests from homeowners to delay making their monthly mortgage payments surged by over 2,000 percent between March 16 and March 30.

And we know why, of course. Many are not working or receiving paychecks during this time because the coronavirus pandemic has shut down workplaces and basically placed a major portion of the economy in a state of dormancy.

Would it make sense to evict these renters and to foreclose on these homeowners?

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Hardly.

Think about it. Landlords who evicted tenants will not likely be able to find new folks to rent those homes during the pandemic, so they have little to gain.  From the state’s perspective, homeless people will exacerbate then public health crisis, and these people will seek public assistance.

If mortgage lenders foreclosed on their clients, again they would add to public health crisis and would be stuck with a home they would have to maintain and likely have difficulty selling.

So, how about using a portion of the $2.2. trillion dollars not directly to bail out banks and landlords but to bail out renters and those with mortgages.

That way everybody wins.  People stay in their homes, and banks and landlords get paid as well.

Two birds. One proverbial stone.

It might seem obvious, but looking back to the Great Recession in 2008 to assess the effectiveness of how we as a nation responded reveals our leaders missed this point.

So we should learn from these past mistakes and process the past, right?

And there were mistakes. The government approved $700 billion in 2008 in part, large part, to buy toxic mortgage-backed securities, packages of irresponsibly approved loans going into default. Depending on which analysis you read, the real amount of the bailout ended up being well over $10 trillion.

In any case, the basic point I want to stress is that the strategy for rescuing the economy was first and foremost to save the system by saving banks by throwing money at them to prevent their total collapse. A small portion of the overall bailout package was targeted to help some homeowners refinance, but that portion did little to save the great many homeowners in dire economic distress because of the severity of the recession — nor did it protect homeowners against the substantial losses in wealth they endured as they watched the values of their homes plummet.

A different approach to tending to the health of our economy, one that focused on the welfare of the people, would arguably have been more effective and more humane, aiding the hardest hit segments of our nation’s people first while at the same time bailing out banks.

We can learn a lot from re-examining the Great Recession of 2008 which we can apply elsewhere in formulating people-centered policies to foster the healthiest response possible to the current economic challenges..

Re-Visiting the Foreclosure Crisis

To grasp more concretely how a people-centered economics would alter the functioning of the U.S. economy in healthier directions, let’s take a closer look at the foreclosure crisis that largely caused our latest Great Recession. Our leaders sought to solve the problem and save the system from total collapse by bailing out the banks from the toxic mortgages they issued which were leaving them high and dry because borrowers could not repay them.

But while the banks were bailed out, the “homeowners” were still foreclosed upon and evicted. Homes were left empty. An abundance of houses flooded the market, driving down property values for those still in their home. Millions more Americans thus found themselves underwater in their mortgages, witnessing their chief investment and wealth asset disappear. Gazillions in wealth were lost, destroying the housing market and eroding the financial wherewithal of the consumer (whose prowess accounts for more than 2/3 of the economy). But the banks were saved. The system was saved. Ugh!

How might a people-centered economic imagination have approached the problem differently? Putting human need first, an economic approach that serves people as opposed to one in which people serve the economy, would have sought first to keep people housed.

Imagine if instead of prioritizing the banks, our leaders had sought to save the system by bailing out homeowners? If the trillions of dollars had been dispensed to those with unpaid mortgages instead of the banks? To those people who could have paid off their mortgages, made good on the “toxic loans,” and arguably have bailed out the banks while staying in their homes? It would have prevented the destruction of the housing market and the death spiral of the overall economy.

This brand of economic thinking, however, would approach governing and the crafting of economic policy with a clearer vision of what the objective of a government and a political economy should be. And that is to serve the people and organize the production and distribution of resources to most efficiently serve human need, first and foremost.

In this sense, this approach promises to pave the way to a more humane economy and world.

The coronavirus pandemic poses a set of complex economic challenges. Bailing out the people may, in some instances, mean bailing out employers so they can keep their employees on the books. If workers are laid off because their employers cannot continue to pay them, they will likely receive unemployment benefits but will in turn lose whatever healthcare coverage and other benefits the employer provided. And imagine all the red tape clogging our systems, and the red tape of re-hiring people if and when we get through this crisis.

The bottom line, though, as our leaders will be charged with distributing trillions of dollars to get the nation through this crushing moment, is that it is the people of the nation who need to be bailed out first. And that will save the economy.

Let’s not, once again, save the system and let the people suffer.

Tim Libretti

Tim Libretti is a professor of U.S. literature and culture at a state university in Chicago. A long-time progressive voice, he has published many academic and journalistic articles on culture, class, race, gender, and politics, for which he has received awards from the Working Class Studies Association, the International Labor Communications Association, the National Federation of Press Women, and the Illinois Woman’s Press Association.