In Which I Disagree With Brad Delong

Brad Delong quotes Lawrence Summers, who asks "Why Haven't the Conforming Mortgage Cap Amounts Been Raised?", and Mr. Delong further says, "These are wise questions. I don't understand why the conforming mortgage dollar caps have not already been raised substantially."

Let's be clear here. They are probably both smarter than I am. They definitely both have far more training in economics.

That being said, I think that, in a world where economic policy is run by sane competent men^*, that any sort of recovery should answer some questions first:

• Who is the target of the bailout. I would argue that distressed homeowners are the target, in which case it's necessary to derive a targeted solution which maximizes the homeowners relief, and minimizes the amoung to which we indemnify the investors, loan companies, etc. Capitalism must allow for failure to be capitalism.
• What regulatory changes must be made in order to prevent this from recurring, seeing as how any bailout increases the belief in further bailouts, and hence destructive risk taking. I think that much of this problem has its roots in the deregulation from the late 1970s through to the present day, so I recommend re-adoption of New Deal era regulations.

In terms of what I would suggest for initial steps:

• An aggressive push to allow borrowers to negate loans due to violations of the truth in lending act, which allows buyers to rescind the loans and void the mortgages. (they still owe the money, but it becomes an unsecured loan, and the debtors have far more rights in terms or restructuring in bankruptcy).
  
• A law invalidating all pre-payment penalties.
• Reregulation of the lending industries to prevent further abuses.
  

^*Yes, I know, that's not the case right as long as Bush is in office.