Charlie Rose - Joseph Stiglitz,Martin Feldstein Jan 6

[Rajiv]

Charlie Rose - Joseph Stiglitz,Martin Feldstein - Jan 6

CHARLIE ROSE: Joining me now from Washington, Martin Feldstein. He’s
professor of economics at Harvard and president emeritus of the National
Bureau of Economic Research. During the presidential campaign, he was an
adviser to Senator McCain. Tomorrow, he testifies before the Democratic
leadership about the economic recovery plan.

Also here with me, Nobel laureate Joseph Stiglitz. He won the Nobel
Prize in economics in 2001. He is a university professor at Columbia
University. During the Clinton administration, he was a member and then
chairman of the Council of Economic Advisers. I’m pleased to have them
both on this broadcast.

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Re: Charlie Rose - Joseph Stiglitz,Martin Feldstein Jan 6

Nice video - Charlie Rose does good work.

I must say, however, I am very disturbed by Professor Feldstein's concept of the government paying 50% of the difference to bring underwater mortgages to be even.

Talk about moral hazard.

Even Professor Stiglitz's view is vague. How much of the underwater portion will the government pay?

My view is that the government should do this:

1) Force all banks receiving Fed support to immediately appraise every mortgage in their portfolio

2) For all mortgages that are underwater, the bank must immediately write down the loss and adjust the mortgage

3) The forgiven portion should be a deferred (5 years) tax lien attached to the home owner personally

4) The banks will eat the losses completely until they are out of reserves, at which point the shareholders are wiped out to provide the next cash. Then on to the bondholders. Once all that is done, the government then can step in and recapitalize the bank in return for ownership.

5) The bank can go back to private once the recapitalization is repaid (plus interest) at some point in the future.