That’s apparently one idea that the OccupyWallStreet crowd are keen on: an expansion of the stupid “get rid of student debt” idea I flayed a couple of weeks ago.
So my immodest proposal is simply this: Individuals and households in the bottom 99 percent who owe debt to any large financial institution that received federal government support during and after the 2008 crisis should see their debt forgiven. That would certainly stimulate the economy, as most people would suddenly find themselves with a great deal more money to spend on iPads (and food, and clothing, and housing, and healthcare). The debt can be forgiven by decree or if the government really wants to it can step in to pay it itself; I don’t much care either way. (Though it’d be nice to see it just wiped off the books, to enrage the banks.)
Let’s wipe the debt of the 99 percent off the books, tell the financial sector to eat it, and get on with our lives.
I can’t even call this Keynsianism. This is pure plunder. Pareene and his numerous supporters can proclaim this to be a stimulus all they want. But one man’s debt is another’s asset. The banks would suddenly be out trillions of dollars in capital and we might trigger bailouts all over again. Your debt would be gone; and so would your job. And the moral hazard would be extreme. Who would want to loan money in the future, knowing the debt could be erased any time a bunch of dirty kids occupies a New York thoroughfare? Indeed, if you look at the history of the jubilee, you’ll find this became a big problem and loan societies had to find ways around it. If God can’t make people loan money before a jubilee, how is Barack Obama going to?
(I’ll leave to you the irony of a bunch of liberals invoked Biblical law as a precedent. Or a bunch of supposed non-partisan activists calling for the most massive forced redistribution of wealth in history. Or the fact that since the cutoff for “the 99%” is half a million, most of this debt relief would be going to people with pretty solid incomes, not the poor and unemployed.)
Now the justification for this is TARP and the Wall Street bailout. Several people, Erin Burnett notably, have pointed out that the bailouts weren’t just a handout; the banks paid back their loans. But I think that too misses the point. The bailouts were a mistake, not a model for what should be done with the rest of the country. Our Congress didn’t even bother to attach conditions for taking the money, such as firing directors or canceling bonuses (actually, Chris Dodd made sure AIG bonuses were protected). The proper response to a dumb idea is not to follow it with an even dumber one.
Look, I understand the anger OWS are feeling and entirely sympathize. The banks are too big; the financial sector has far too much political power. Banks are sitting on piles of cash while some people are entering their third year without the hope of a job. It’s tough. Every night, I think about how lucky I am to have work.
But burning the house down isn’t the answer.
(McArdle has a decent idea: change the law so that student loans can be discharged in bankruptcy. They are presently the only loans that can’t be. Student debt has quintupled in the last decade and Big Education is becoming a huge bubble. Maybe it’s time to let the air out.)
As I said before, the OWS crowd is still organic, still figuring out what they stand for. But if this is the best they can come up with so far, maybe Herman Cain is right about them.