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There may actually be some people who regard the home mortgage crisis as solved, especially given the massive State intervention and amount of money poured in. The basic problem, however, remains, despite the periodic rosy predictions of economists and presidential advisers issued just before the next plunge in the stock market and the economy. Financial institutions still have an effective monopoly on home mortgages, to the detriment of homeowners, the industry itself, and the country at large. The government bailout solved nothing, but puts potentially trillions of dollars of additional debt on the backs of the taxpayers and future generations, and all to save the questionable investments of gamblers, speculators, and foreign investors who presumably knew the risk of "investing" in non-productive assets.

There is a better way, an ethically-based solution to the crisis that, nevertheless, is fully consistent with both free market and democratic principles. Instead of putting more burdens on the taxpayer and potentially debauching the U.S. dollar even further, the government should confine its role to providing enabling reform legislation, and to policing abuses of the system if and when they occur. Private citizens and groups should be allowed to organize themselves into "Homeowners' Equity Corporations," or "HECs," and let the free market operate properly to solve the problem instead of trying to force the tax system to be anything other than a way for government to raise money to meet its legitimate expenses.

A HEC would be a proposed for-profit, professionally-managed stock corporation whose shareholders would be homeowners in danger of foreclosure. HECs and there should be many, to provide redundancy, lower risk, and ensure competition in a community would purchase distressed properties at their current market values. HECs would obtain acquisition loans from commercial banks, which in turn would discount the loans at the local Federal Reserve under section 13 of the Federal Reserve Act at a rate reflecting transaction costs and a revised risk premium. This support of expanded local bank credit backed by financially feasible private sector housing investments stands in sharp contrast to the inappropriate use of the Federal Reserve's discount powers to bailout hedge fund speculators and predatory mortgage lenders. The homes could then be leased at a realistic market rate to their former owners or new tenants.

The tenant would earn shares in the HEC as lease payments were made sufficient to cover debt service, maintenance, and taxes. When the acquisition loan for a particular property was fully paid, the tenant could exchange his or her HEC shares for title, or continue as a tenant/shareholder at a reduced lease payment, sufficient to cover maintenance and property taxes. Financing the purchase of properties through the Federal Reserve System and its member banks would cost the taxpayer nothing and be the first step in restoring a currency backed by hard assets instead of government debt.

This innovative alternative to the current system would probably require some enabling legislation from Congress to give it powers similar to those currently enjoyed by leveraged Employee Stock Ownership Plans ("ESOP"). After that, the State can step aside, except for its regulatory role, and let people solve their own problems without imposing any more burdens on the taxpayer.

Learn more about this author, Michael Greaney.
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