The US has over 800,000 repossessed homes already, and the mortgage debt overhang is estimated at $150B. The government has failed in its efforts to help 4 or 5 million homeowners refinance, mostly because the banks don't want to take the hit on their balance sheet by writing down the value of the homes' mortgages. But we should, and it shouldn't be placed on the backs of the home 'owners' -- the people paying the mortgages -- or socialized by government bailouts. The banks -- and the investors that bought securitized financial instruments based on mortgages -- should take a massive write down, across the board, and drop the face value of mortgages, with corresponding lower mortgage payments. But they will fight this tooth-and-nail.

Ireland is moving toward such a solution, however:

Ireland Mortgage Bill Aims to Aid Owners and Jump-Start Economy - NYTimes.com

With its economy still reeling from the housing crash, Ireland is making a bold move to help tens of thousands of struggling homeowners.

The Irish government expects to pass a law this year that could encourage banks to substantially cut the amount that borrowers owe on their mortgages, a step that no major country has been willing to take on a broad scale.

The initiative, which would lower a borrower’s monthly payment, could prevent a tide of foreclosures, an uncertainty that has been hanging over the Irish housing market for years. If it works, the plan could provide a road map for other troubled countries.

[...]

Most countries that have suffered housing busts, including the United States, have made limited use of so-called mortgage write-downs, the process of forgiving a portion of the principal on the loan. The worry has been that some borrowers who can afford their mortgages will stop making payments to take advantage of a bailout. Banks have also been reluctant since they could face unexpected losses.

Ireland is different from the United States and most countries. During the financial crisis, Ireland bailed out the banks, and the government still has large ownership stakes in some of the biggest mortgage lenders. So taxpayers are already responsible for mortgage losses. In other countries, the burden of principal forgiveness would largely fall on privately owned banks.

But the debate is the same: whether to push lenders to take losses now, in hopes that things will get better faster, or wait for the housing market to heal on its own, which could cloud the economy for years to come.

The financial crisis, fomented over years by big banks and presided over by executives, involved reckless lending, heedless securitizations, exorbitant paydays and illusory profits, all of which led to government bailouts and economic calamity. Is it plausible that none of that broke the law and that none of the people in positions of power and authority knew what was going on?

It seems likelier that it’s not intent that’s missing, but creative thinking on the part of federal prosecutors about the web of federal statutes that could be brought to bear on potential cases. As far back as 2009, when the Justice Department lost a financial fraud case against a pair of hedge fund managers at Bear Stearns, it seems to have made an institutional determination that it could not win against big banks and top bankers. That stance has dovetailed with the Obama administration’s emphasis on protecting the banks from any perceived threat to their post-bailout recovery.

In the meantime, the statute of limitations, generally five years for securities fraud and most other federal offenses, is running out, precluding the possibility of bringing many new suits dating from the bubble years.

The Fed -- supposedly about the fray of partisan politics -- is as ideologically divided as everything else in America society, and as a result, an upcoming meeting is likely to expose the deepening split over Fed policies, especially with regard to attacking unemployment:

It’s the Fed’s Time to Step Up - Christina Romer via NYTimes.com

The argument for additional monetary action is straightforward. By law, the Fed is supposed to aim for maximum employment and stable prices. But the unemployment rate is 8.2 percent — a good two percentage points above what even the most pessimistic members say is its sustainable level. Moreover, the spate of disappointing data and the deepening crisis in Europe make continued weakness all too likely.

What about the arguments against further action? I don’t think they are convincing enough to win the debate.

Some Fed members contend that monetary policy has already done its share. Other policy makers, they say, need to step up. Both the Fed’s chairman and its vice chairwoman have talked about the need for additional near-term fiscal stimulus as part of a gradual deficit-reduction plan. And many Fed committee members have called for a more aggressive housing policy. Indeed, the Fed raised some hackles in January when it sent an unbidden white paper to Congress, outlining possible administrative and legislative initiatives to deal with problems like foreclosures and underwater homeowners.

I agree that we need more effective fiscal and housing policies. But neither is likely to happen, at least not before the presidential election. As a result, the Fed is the only plausible source of immediate help for the American economy. It was set up as an independent body precisely so that somebody can do what’s right when politicians can’t or won’t.

I find a related argument even more frustrating: that the Fed shouldn’t act because Congress wouldn’t like it and might retaliate. This argument exposes the important truth that the Fed is only as independent as Congress lets it be.

But it also raises a key question: what are Fed policy makers saving their independence for? If rescuing millions of Americans from the torment of unemployment isn’t a reason to risk their independence, what is?

It's taken less than a year for the unthinkable and impossible to become likely or perhaps even inevitable. And why? Austerity economics has eliminated all hope of growth and economic rebound, leaving little or no chance to recover. Next: how to bail out economies deemed too big to fail?

Landon Thomas Jr, Euro Zone at a Crossroads, With the Union on the Line - NYTimes.com

Spain is sitting on an estimated 220 billion euros, or about $273 billion, in failed real estate loans alone — a number that surpasses the entire output of the Greek economy. And with the fourth-largest euro zone economy — behind Germany, France and Italy — there is little doubt that Spain is too big to fail. Or, more precisely, to be allowed to fail.

[...]

Analysts estimate that a comprehensive rescue for Spain would cost 350 billion euros, and one for Italy even more. Sums that large would quickly overwhelm the 500 billion euros available in the new European rescue fund, the European Stability Mechanism.

[...]

It is the nub of the euro zone’s existential quandary: how to get taxpayers in northern creditor countries like Germany to provide funds to countries like Greece and Spain that are unwilling to accept the loss of sovereign control over their banks and budgets that would be a consequence of such assistance.

[...]

Analysts estimate that the amount needed to backstop failing Spanish banks is 60 billion to 80 billion euros, which could come from Europe’s rescue fund.

The sticking point is that Spain wants Europe to inject money directly into these banks, as in the bank bailout program in the United States in 2008 and a similar effort by the British government.

Germany, however, has no desire to swallow the bill for Spain’s bad banks, so it is insisting that funds be disbursed to the Spanish government and that strings be attached. It wants more draconian spending cuts and perhaps even losses for the mostly Spanish investors who hold the stocks and bonds of these failed banks.

The newsmagazine Der Spiegel reported that Germany’s finance minister, Wolfgang Schäuble, last week pressed Spain’s economy minister, Luis de Guindos, to accept a bailout from the European Financial Stability Facility; Mr. de Guindos rebuffed him. But as Berlin and Brussels butt heads with Madrid over who pays what, when and how, money continues to flee Spain at an alarming rate. According to figures from the Spanish central bank, 66 billion euros left the country in March as investors sold Spanish stocks and bonds with abandon. And in April, the outflow of deposits from Spanish banks also picked up, with 31 billion euros leaving the Spanish banking system, according to the European Central Bank.

Simply put, the number of investors willing to hold Spanish assets of any kind is shrinking by the day. Moreover, with many money managers now concluding that Greece will return to the drachma after elections June 17, the attack on Spain has broadened into an attack on the euro itself, as reflected by the currency’s precipitous fall to a two-year low of 1.23 against the dollar.

One of the side effects of being a NY Times columnist is that you have a pulpit to talk about anything that you'd like. And David Brooks abuses that privilege frequently, despite being occasionally insightful about the human condition and the vagaries of the errant right.

He recently preached economic 'structuralism':

The Structural Revolution - David Brooks via NYTimes.com

There are several overlapping structural problems. First, there are those surrounding globalization and technological change. Hyperefficient globalized companies need fewer workers. As a result, unemployment rises, superstar salaries surge while lower-skilled wages stagnate, the middle gets hollowed out and inequality grows.

Then there are the structural issues surrounding the decline in human capital. The United States, once the world’s educational leader, is falling back in the pack. Unemployment is high, but companies still have trouble finding skilled workers.

Then there is political sclerosis. Over the decades, companies and other entities have implanted a growing number of special-interest deals into the tax and regulatory codes, making it harder for politically unconnected, new competitors, making the economy less dynamic.

These and other structural problems have retarded growth and wages for decades. Consumers tried to compensate by borrowing more. Politicians tried to compensate by reducing the tax bill, increasing deficit spending, ensuring easy credit for homebuyers and by helping workers shift out of the hypercompetitive, globalized part of the economy and into the less productive and more sheltered parts of the economy — mostly into health care, government and education.

But you can only mask structural problems for so long. The whole thing has gone kablooey. The current model, in which we try to compensate for structural economic weakness with tax cuts and an unsustainable welfare state, simply cannot last. The old model is broken. The jig is up.

I wrote a post saying that, yes, the jig is up: but not the same jig as he was talking about. I said we have to counter the trend toward globalism, that is 'hyperefficiently' crushing the life out of our economy, and our lives.

The Change That Is Needed, Stowe Boyd

I agree with Brooks that the jig is up, that the current world order is unsustainable, and that we shouldn’t try to get back to the status quo ante. But his prognosis and his prescription is completely wrong.

It was Bush and his wars and tax cuts that ran up the deficits and accelerated the inequity that eats at our society like a cancer, that has crushed the middle class and made the working class the new poor. It’s the special interests of globalist corporations that warps the economic sphere, not the welfare state: their prerogatives continue while we are choking off government support to the poor, unemployed, and ill.

More important is what is left unsaid: the true costs of this industrial economy — climatic, environmental, financial, and societal — have been externalized, with the difference making billionaires richer, driving a divisive wedge into our interconnected world society. Most of us have been marginalized, our interests discounted, our lives made precarious, so that this system can persist, and so that the few can benefit.

Paul Krugman wades in, destroying Brooks arguments about structuralism at the root:

Easy Useless Economics - NYTimes.com

Claims that our problems are deep and structural offer an excuse for not acting, for doing nothing to alleviate the plight of the unemployed.

What does it mean to say that we have a structural unemployment problem? The usual version involves the claim that American workers are stuck in the wrong industries or with the wrong skills. A widely cited recent article by Raghuram Rajan of the University of Chicago asserts that the problem is the need to move workers out of the “bloated” housing, finance and government sectors.

Actually, government employment per capita has been more or less flat for decades, but never mind — the main point is that contrary to what such stories suggest, job losses since the crisis began haven’t mainly been in industries that arguably got too big in the bubble years. Instead, the economy has bled jobs across the board, in just about every sector and every occupation, just as it did in the 1930s. Also, if the problem was that many workers have the wrong skills or are in the wrong place, you’d expect workers with the right skills in the right place to be getting big wage increases; in reality, there are very few winners in the work force.

All of this strongly suggests that we’re suffering not from the teething pains of some kind of structural transition that must gradually run its course but rather from an overall lack of sufficient demand — the kind of lack that could and should be cured quickly with government programs designed to boost spending.

So what’s with the obsessive push to declare our problems “structural”? And, yes, I mean obsessive. Economists have been debating this issue for several years, and the structuralistas won’t take no for an answer, no matter how much contrary evidence is presented.

The answer, I’d suggest, lies in the way claims that our problems are deep and structural offer an excuse for not acting, for doing nothing to alleviate the plight of the unemployed.

Of course, structuralistas say they are not making excuses. They say that their real point is that we should focus not on quick fixes but on the long run — although it’s usually far from clear what, exactly, the long-run policy is supposed to be, other than the fact that it involves inflicting pain on workers and the poor.

Anyway, John Maynard Keynes had these peoples’ number more than 80 years ago. “But this long run,” he wrote, “is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again.”