Economics bloggers: A pound of flesh and financial literacy from Wall Street

Remember when the subprime crisis first broke out last fall, and the Bush administration’s first response was to suggest that people read the fine print on their mortgages and take financial literacy courses?

It would not be such a bad idea for Wall Street to do the same now.

There are plenty of quality community colleges, for example, and there’s probably still time to sign up for a course each week in understanding investments.

Tanta at the blog Calculated Risk — a mortgage broker by trade — has some additional thoughts on this. She’s among a growing number of people calling for the bailout to include some punitive measures for Wall Street, or some provisions to help homeowners.

One would be to allow bankruptcy judges to modify mortgage loans — so the borrower would owe the fair-market value on the home, not the inflated loan amount.

Here’s Tanta:

What I really really like is the idea of subjecting CEOs to the same petty humiliation everyone else gets treated to. I suggest that for every separate asset these CEOs sell to the government, they be required to write a Hardship Letter over a 1010 warning (that’s a reference to the statute forbidding lying in order to get a loan) explaining why they acquired or originated this asset to begin with, what’s really wrong with it in detail, what they have learned from this experience, and what steps they are taking to make sure it never happens again.

Furthermore, the Treasury Dept. will empanel a committee of the oldest, most traditional, and bitterest mortgage-loan underwriters — preferably those downsized to make way for automated underwriting systems — to review these letters and opine on their acceptability.

Look for more calls for Wall Street to take some hits in return for $700 billion from taxpayers.

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Mary Kane

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