The main problem right now is that we're in a constant downward spiral of decreasing spending -> job losses -> foreclosures -> repeat. Right? If we could break that cycle we could at least bottom out the market and then start working our way back up. So....
The government should pay to the banks the value of 25% of all mortgages originated or refinanced from late 2001 to late 2007 (or whatever the bubble years were). In return for this money, the banks agree to reduce all of these mortgages by 25%. That's it.
The conservatives are happy because the government takes no ownership stake in the banks or the mortgages or anything else. Other than this one action they stay out of the market. The liberals are happy because this gives direct benefit to the middle class. The banks get a bunch of capital to pad their bottom line and extend credit. Most importantly, homeowners get relief in the form of lowered mortgages payments so fewer of them go into foreclosure and those who weren't near foreclosure get a little extra money each month to spend or save as they see fit. Also, this puts the value of houses a little closer to their true value which helps to stabilize the housing market a bit and also allows at least some current homeowners the chance to unload their current properties and buy a new house without taking a major loss.
The only major downsides I can see are that it would cost a ton of money and it would end up rewarding some bad behavior from people who took out loans they couldn't afford, but both of those downsides are inevitable parts of every equation. The reason my solution is different is that it's forward thinking-instead of just giving money to banks to offset toxic asset write offs (due to foreclosure) it stabilizes the banks *and* the homeowners so that foreclosures stop happening and then banks don't need to continue writing off toxic assets.
So, brilliant or simplistic? What do you think?
I think it would work, but then again, I just really want to sell my house and get something bigger.
1 comments:
I like this idea.
However, if it happens, definite steps need to be taken to ensure that this doesn't happen again. Google "NYT 1999 article" (it's the first one), and give it a read. This whole spiel was entirely preventable.
On a related note, do you feel that we need to get back to the era when you couldn't purchase without at least 20% down? Back in the day, that was pretty much standard issue.
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