Main Street and Wall Street's fortunes are tied

"When you owe the bank $10,000, it's your problem. When you owe the bank $10 billion, it's the bank's problem."

So says Daniel Gross in his latest Moneybox column, which explains why Wall Street didn't foreclose on one of two Bear Stearns hedge funds that "borrowed imprudently" to invest in securities backed by subprime mortgage loans. If execs at Wall Street investment firms had seized loans that serve as the fund's collateral Gross says, they "would have imposed financial hardships on themselves, on their friends, customers, and neighbors."

Allowing Bear Stearns to bail the fund out instead, Gross says, averted a crisis in other similar funds (for the time being at least -- PIMCO bond fund manager Bill Gross thinks the problems have only been "papered over").

It's in Wall Street's best interests to show homeowners facing foreclosure the same consideration, Slate's Gross says.

"The rapid expansion of subprime lending has tethered the fortunes of higher-income Wall Street to the fortunes of lower-income Main Street," Gross writes. "As Main Street has foundered, financial companies have generally responded by severing the lines and leaving struggling borrowers to their fate. They might be well-advised to throw some life preservers."

(An issue that's been the topic of some recent discussion on the Inman Blog -- foreclosures can be costly for lenders, but some of the companies servicing these loans packaged as collateral for mortgage-backed securities and collateralized debt obligations don't have a lot of leeway to do workouts without the go-ahead from investors. It's probably easier for banks that hold the loans they originate to decide they want to do workouts, but it was private-label lenders who sold their loans on Wall Street who made a lot of the subprime loans that have been faltering since December).

Gross, who just published a book that argues bubbles are good for the economy (yup, even housing bubbles), announced this week on his personal blog that Newsweek has picked up his Moneybox column and that he'll soon be blogging over on Newsweek.com.

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