Let’s End The Housing Crisis Here And Now … A Modest Proposal For How To Spend The $700BN

October 7, 2008

Even us “glass half-full” types have to admit the news these days is bad.  Any day Congress passes a $700BN and has to tag on only another couple billion or so of Christmas ornaments to get it passed, well, on that day, you know things were urgent, and they had to act fast.  Wooden arrow manufacturers, Caribbean distillers, and certain other recipients of congressional largesse pork may be quite happy now, but hopefully the remaining $700BN will be spend actually trying to solve the problem.

And that’s where my modest proposal comes in.

Fundamentally, this crisis is about housing values, or more specifically about uncertainty around housing values.  Behind most of the bankrupties, the bailouts, the CDO-thing-a-majiggies … lies a portfolio of mortgage loans whose value is … 3 cents on the dollar? A dime?  A quarter?  47 cents?  Nobody knows, and therein lies the problems.

Our fearless leaders have proposed spending the $700BN largely on buying these “non-performing assets.”  By some financial wizardry, the exact same folks who could not determine the value of these assets in the private market, are about to get hired by Uncle Sam to determine these assets’ values on the taxpayer’s dime.

So here’s what we do instead:  Let’s spend that $700BN buying not the mortgages, but the underlying homes themselves.  Let’s say homes in the US have an average value of $200K.  [Pause for my west and east coast readers to chuckle.]  $700BN divided by $200K is … 3,500,000 (three million five hundred thousand.)

That’s right.  With $700BN we could buy a couple of million homes.  We’d start by buying, say, 75% of the inventory on the market right now.  That should restore confidence in the market pretty quickly.

Presto!  Problem solved.

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Written by Kevin · Filed Under Articles, Consumer, Industry 

Comments

4 Responses to “Let’s End The Housing Crisis Here And Now … A Modest Proposal For How To Spend The $700BN”

  1. Chris Iverson on October 8th, 2008 10:28 am

    Kevin,

    An excellent idea. Now, what would you pay for those homes? List price? 5% under? 25% under? Unfortunately, the value of a home on the market isn’t known until it sells, which then sets the market value for that home.

    It’s the same problem they are having evaluating the value of those mortgage backed securities.

  2. Kevin on October 8th, 2008 11:14 am

    Zillow? David G — you around to chime in on this one?

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  4. Mike Stewart, Downtown Vancouver Realtor on November 20th, 2008 7:40 pm

    Great idea, but what would happen to them once the Federal Gov’t bought them? Would the previous owners stay in them and maintain them? Who would maintain these houses?

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