Matt Yglesias wants the public to be able to participate in these sweetheart deals we're handing banks. A couple of problems I see with this:
- It's only a sweetheart deal if you at least kind of know what you're doing. Look at the stock market crash, and tell me that the broad public needs to be given the opportunity to take highly leveraged bets on complex securities. They couldn't even figure out that Kosmo.com wasn't going to work.
- Adding the public to the mix defeats the alleged purpose of the program, which is price discovery of the probable value of these assets, a la James Surowiecki's The Wisdom of Crowds. The public has even less idea than the bankers as to what these assets might be worth. If you substitute some sort of government manager, he won't particularly care what they're worth; it's not his money. Wall Street will do a very imperfect job at valuing these assets, but the public will be even worse.
- Non-recourse loans aren't costless to individuals: they show up on your credit score if you default, which is why foreclosure is so painful. Is Congress going to mandate that the credit bureaus ignore this information? You could mitigate this by setting up an intermediary, but that has substantial administrative costs, and almost certainly wouldn't be ready by go-time.