The subprime crisis should have been avoided rather than solved, but there was a simple way to solve it.

All the efforts of the government, no matter how you look at it, were targeted at pumping money into the financial system to inflate prices. Not only is this approach unsustainable - it tends to produce other similar crises - it is also morally dubious.

Yet, I contend that there is a moral, simple, fast, effective, free, and economically sound way which would have solved the crisis.

Overall, the economic damage was the construction of too many houses. The fact that people with bad credit got to have a mortgage is not a cost in itself. Instead of increasing the supply of money to match the supply of houses, it would have been far better to increase the demand for houses.

At the beginning of the crisis, in August 2007, the US government should have simply auctioned 20,000,000 green cards, and used the proceeds to fund the tax stimulus. Problem solved. Not only would this have stopped the crisis, it would have erased the cost… the error of building too many houses would have become, by chance, the correct economical choice for the increased demand.

It’s a bit of a one shot, and doesn’t address the systemic problems that lead to the crisis, but it’s certainly much better than trillions of dollars of bailouts.

Why this is politically infeasible while trillions in bailouts are not is, frankly, beyond my comprehension.