The bailout package just approved by Congress doesn’t address this problem at all. Homeowners and consumers still have the same debt, still face the same monthly payments. The only change is that the U.S. government has become a collection agent for the banks and investors.

The solution is to reduce the amount that working people owe. Reduce homeowners’ and consumers’ debt to the level it would be at if reasonable lending standards had been applied in the first place. Conservative practice is that families should pay no more than 25 percent of their income for housing. So a people’s bailout plan would mandate that mortgages be reduced so that monthly payments will be 25 percent of household income. But in no case should the debt be for more than the real value of the house, as determined by historical price levels adjusted for inflation. Credit card debt, second mortgages, and home improvement loans, college loans, and medical debt could also be adjusted by similar calculations, to a maximum of 10 percent of household income.

This would not cost the government a penny — it would force banks and investors to recognize the losses resulting from their own bad judgment and fraudulent practices. Millions of people would still be in their homes, and neighborhoods and local tax bases would be stabilized. And the financial system would be more stable because the banks could now be confident of receiving a steady stream of payments, even though these payments would be less than what they originally expected.

The proposals to revive the economy, listed at the beginning of this article, should still be adopted. The economic stimulus package that was blocked in the Senate by a Republican filibuster a few weeks ago included some of those provisions. And major reform and regulation of the financial industry is necessary; there are some excellent proposals to take over failing banks, regulate the financial industry, and tax financial transactions and exorbitant compensation to control speculation and help pay for the program. But until we clear up the massive, unfair, and often illegal debt that has been fastened on working families, it will act as an anchor dragging down the economy, and Main Street will be haunted by insecurity and misery.

Democratic leaders in Congress had a number of proposals that would have reduced the amount families owe on their mortgages. They were blocked by the Republicans, who don’t support any meaningful relief for homeowners.