GOOD

A Lesson from Greece: Time for an American Bail-In

If it’s good enough for the Greeks, it’s good enough for us.

As attempts to rescue Europe from a debt-driven financial crisis take shape, two linked strategies are being employed: The hated bailout and its less well-known but equally important (and far nicer) cousin, the bail-in. We need a bail-in in America.


When you hear people talking about bailing out Greece, that means a lot of other European countries—as well as global institutions like the IMF and the Chinese, if anyone can convince them to play—want to give the Greek government money so that the country can pay off everyone it owes money—primarily banks in France, Germany and the United Kingdom.

Whether or not the Greeks are bailed out, the country is in for an ugly near- and medium-term future that involves cutting their spending quite a bit: They’re not going to be able to borrow money from other countries for a long time, either because they’ve defaulted or as part of the conditions imposed by the people providing the bailout.

But because the international community would like to sweeten the deal—they’d rather see Greece accept their bailout than default and create more market chaos—and because Greece simply can’t pay the debts it has, they’ve worked a bail-in into the equation. Greek debts will be cut 50 percent, forcing their lenders to share some of the losses—after all, they have some responsibility for the risk of their investments.

In the United States over the last two years, we’ve faced a different kind of financial crisis, but one that is relatively analogous: In order to keep our financial system from cratering under the weight of all the bad mortgage loans it created, the U.S. government bailed the banks out in 2008 with the TARP program and through Federal Reserve lending. It made the government a lot of money, saved the financial system, helped avert a depression, and kept the bankers highly profitable and highly paid.

What it didn’t do is solve our unemployment problem or our economic growth problem. One of the main reasons it didn’t do that is because there was no concerted effort to help alleviate Americans’ massive mortgage loan debt burden; thanks to the drop in housing value, more than 1 in 4 homeowners owes more money than their home is worth.

When people have a lot of debt, they don’t spend money, so businesses don’t earn money and hire people. That’s one of the reasons it’s so hard to bounce back from financial crises like these. The answer, then, is to engage the other half of the equation and give Americans a bail-in.

The best way to do that is probably through mortgage principal reductions, where banks write-down people's mortgages to manageable levels in lieu of foreclosure, or allow people who are behind on their payments to cede ownership and pay market rent to stay in their homes. The government would likely have to help coordinate this move, but it only makes sense: Public monies kept the banks alive when they were in trouble, and it’s time for the banks to do the same for the economy. It doesn’t necessarily need to be mortgage loans, though: Some people suggest increasingly onerous student loans should be the target of a bail-in.

However we do it, cutting debt will free people to spend money, helping stimulate the economy. It’s only fair, and if it’s good enough for the Greeks, it’s good enough for us.

Articles


September 20th marks the beginning of a pivotal push for the future of our planet. The Global Climate Strike will set the stage for the United Nations Climate Action Summit, where more than 60 nations are expected to build upon their commitment to 2015's Paris Agreement for combating climate change.

Millions of people are expected to take part in an estimated 4,000 events across 130 countries.

Keep Reading Show less
The Planet
via Apple

When the iPhone 11 debuted on September 10, it was met with less enthusiasm than the usual iPhone release. A lot of techies are holding off purchasing the latest gadget until Apple releases a phone with 5G technology.

Major US phone carriers have yet to build out the infrastructure necessary to provide a consistent 5G experience, so Apple didn't feel it necessary to integrate the technology into its latest iPhone.

A dramatic new feature on the iPhone 11 Pro is its three camera lenses. The three lenses give users the the original wide, plus ultrawide and telephoto options.

Keep Reading Show less
Health
via I love butter / Flickr

We often dismiss our dreams as nonsensical dispatches from the mind while we're deep asleep. But recent research proves that our dreams can definitely affect our waking lives.

People often dream about their significant others and studies show it actually affects how we behave towads them the next day.

"A lot of people don't pay attention to their dreams and are unaware of the impact they have on their state of mind," said Dylan Selterman, psychology lecturer at the University of Maryland, says according to The Huffington Post. "Now we have evidence that there is this association."

Keep Reading Show less
Health
Photo by Thomas Kelley on Unsplash

It's fun to go to a party, talk to strangers, and try to guess where they're from just by their accents and use of language. It's called 'soda' on the East Coast and 'pop' in the Midwest, right? Well, it looks like a new study has been able to determine where a Humpback whale has been and who he's been hanging out with during his awesome travels just from his song.

Keep Reading Show less
Science

There is no shortage of proposals from the, um, what's the word for it… huge, group of Democratic presidential candidates this year. But one may stand out from the pack as being not just bold but also necessary; during a CNN town hall about climate change Andrew Yang proposed a "green amendment" to the constitution.

Keep Reading Show less
test