There have been programs for mortgage reductions and calls for more. It strikes me as an unusual position. Essentially, it is a type of bankruptcy proceeding where the equity holders retain full ownership. I see the proposal being proposed for homeowners. I wonder if anyone ever proposes it for commercial contexts? Where the government intervened with GM to alter the proceedings against the bondholders, it appears to have been for the benefit of the labor unions, not the previous equity holders.
I wonder how markets would differ if that was the norm. What if bankruptcies triggered haircuts for creditors, but equity holders retained their ownership?
Debt would be a lot more expensive and a lot more cyclical. Creative destruction and flexible asset allocation would be hampered. Banking would be very difficult.
Is the housing context so different from the commercial context that the case for housing cramdowns could be that much better than the case for equity-friendly corporate cramdowns?
I suppose an Austrian critique of monetary policy is that monetary accommodation is exactly this - a haircut for creditors while the equity holders retain control, which hampers creative destruction. So, maybe the incoherent position would be to support monetary accommodation but not to support housing cramdowns.
But that is my position....Culturally, or pragmatically, we accept that the underlying value of currency is flexible, whereas the legislated alteration of mortgage contracts seems like the undermining of the respect for contracts, an important feature of a civil economy. I'll admit that this is a somewhat arbitrary distinction. Both actions involve discretionary public policy with clear winners and losers. Hmm, cognitive dissonance....