We all need more creative thinking and Jeff is one of the best people to supply it:
True just sending money is not incentive compatible. But there is no reason to bail out homeowners. Just intervene in any mortgage default. Seize the property and continue making the mortgage payments. In the short run rent the property back to the homeowner.
This is what I have been advocating to my colleagues. I don’t know why it is not under discussion. Before going with the arbitrary implememtation that Paulson is proposing now there should be some convincing argument that it’s more efficient than this alternative. It is clearly the most direct approach and therefore should be the default (so to speak.)
Thoughts? Unlike Tyler (and some others), Jeff is not obsessed with Jonathan Swift.