I’ve been reading about some economic modelling which has looked at how a recession might be managed. For the specific model developed, the findings were stark
- If the banks are rescued, unemployment peaked at 13% and the economy returns to equilibrium after 10 years
- If the debtors are rescued, the recession is over in less than 2 years and unemployment peaks only at 10%.
Steve Keen, “Declaring Victory at Half Time”, Real World Economics Review, No 52 (10 March 2010), pp 63-66
So why have we been so eager to rescue the banks? What are the linkages between the banks and our political parties that have led to this deference and subservience?
One approach to rescuing the borrowers was outlined by Karl Deeter of Irish Mortgage Brokers on radio this morning (Today with Pat Kenny). This would involve an (unconditional) write-down of mortgage debt to the current value of the property (presumably in line with the property tax valuation). I might add that this should only be applied to properties which are the Principal Private Residence, as in my view the “buy to let” sector involved much commercial speculation and should therefore be treated as any other business failure.
Would those in the know care to cost such an approach?