I am fed up with the structure of the stimulus plan. Bailing out failed banks is foolish when tax credits for mortgage payments would cut the foreclosure rate and fix the toxic debt. Why ignore this easy and super-efficient tactic?
If I could recommend a specific plan, it would be to provide tax credits for up to $30k/year in mortgage payments for primary residences for the next 2 years. This relatively cheap solution maintains free market capitalism with all the good incentives, and would dramatically reduce the foreclosure rate — particularly for those paying less than $30k/year for their mortgages. The plan could be extended or expanded if necessary, of course.
The result would be a reduction in mortgage defaults, an increase in the value of mortgage backed securities (MBSs), and a recovery of the financial strength of the lending institutions and pensions that hold MBSs. Essentially, this would repair the cause of the credit crisis rather than throwing money away at the symptoms and rewarding failure.
As soon as it is announced, assumptions about foreclosure rates would fall, raising the value of MBSs the same day.