Hillary Wants to Let Greenspan Decide Whether to Rescue Home Owners

I wonder what Paul Krugman, who has pointed to Alan Greenspan's role in fostering the current financial crisis, would think of asking Greenspan to help decide if the US should help rescue home owners, and not just the Wall Street financial giants. From Reuters:

WHITE PLAINS, New York (Reuters) - Former Federal Reserve Chairman Alan Greenspan and other economic experts should determine whether the U.S. government needs to buy up homes to stem the country's housing crisis, Democratic presidential candidate Hillary Clinton will propose on Monday.

Clinton, a presidential candidate and senator from New York, said the Federal Housing Administration should "stand ready" to buy, restructure and resell failed mortgages to strengthen the ailing U.S. economy. . . .

Clinton threw her weight behind legislation proposed by Democrats Rep. Barney Frank of Massachusetts and Senator Chris Dodd of Connecticut that would "expand the government's capacity to stand behind mortgages that are reworked on affordable terms."

But she said a bipartisan group should determine whether that approach was sufficient or whether the U.S. government should step in as a temporary purchaser.

The working group could be led by bipartisan economic heavyweights such as Republican Greenspan, Democratic former Fed Chairman Paul Volcker and Robert Rubin, the treasury secretary under President Bill Clinton.

Under the Frank plan, the government would take failing mortgages off the hands of investors and write new terms that would prevent foreclosure. It would see lenders write down the mortgage amount in exchange for a government guarantee.

Krugman has been beating the drums for more closely regulating the financial industry, which has taken over much of the mortgage market once held by regulated banks and savings and loans. Greenspan has opposed such regulation, and Rubin I suspect is only a recent convert.

Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions -- the "shadow banking system," which relied on complex financial arrangements to bypass those safety regulations.

Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.