Paola Sapienza and Luigi Zingales (2009), "People’s Will or Wall Street’s Will?":
2.25 million foreclosures were filed last year and at least 1.7 million are expected this year. This dramatic housing crisis is at the origin of the current financial and economic woes our country is experiencing. But if you were to look at Washington, you would hardly notice. Last February, Senator Dick Durbin (D-Ill.) introduced a proposal to redesign Chapter 13 in an attempt to help homeowners avoid foreclosure. In the past year his proposal was largely ignored. In the meantime, Congress approved a $168 billion tax cut for the first stimulus package, $700 billion to help banks, and even held an emergency session after the election to help General Motors and Chrysler. Compare it to HOPE, the limited program for homeowners approved only in October with nominal success to date.
The change in administration does not seem to have altered the focus: $825 billion for the new stimulus package and a new plan to commit between $1 – 2 trillion to create an “aggregator bank” that will relieve banks of their toxic assets at taxpayers’ expenses. And what about the homeowners? At most, they’ll get $50 billion of the TARP leftovers. Why so much interest in helping Wall Street and so little interest in helping Main Street?
This is certainly not a reflection of the will of the American people. In a recent representative survey of 1,038 Americans we find that 62 percent of respondents think that the government should intervene to help homeowners who are defaulting. By contrast, 48 percent approve the government helping banks, and only 41 percent approve of the government helping GM. Even the self-declared republicans, who vehemently oppose the bailout of GM (74 percent), are less averse to help homeowners (64 percent). Among democrats, the percentage in favor of helping homeowners is overwhelming (80 percent), as it also is among independents (59 percent). So why do two completely opposite administrations follow the same path?
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