the bill we really need
Sep. 29th, 2008 10:54 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
totientWall street has a mess on its hands. Cleaning it up is going to be tough; someone is going to be stuck with a big bill. But finance is not a zero-sum game and we should not be treating it as such. We need to look at where money is still leaking out of the system and plug the holes.
The first place to look is the lawyers. Whenever there's money bleeding out of a system you can be sure lawyers are benefiting. In this case it's about the record number of foreclosures, which are very expensive for the banks. We need a "safe harbor" law to let people walk away from underwater properties. No bankruptcy, no lawyers, just a law that says if a homeowner wants to be rid of a property he can fill out a standard form, sign on the dotted line, and walk away. This could be a government homebuying program, or a requirement on the primary lender, or something else, it doesn't matter, as long as the lawyers get cut out of the feeding frenzy.
The next place to look is vacant properties. How inefficient it is to have houses go vacant and therefore unmaintained? These are also a health risk (mostly from mosquitos breeding in the pools) and drive down nearby property values. Banks don't have the resources to show properties and mandating that they somehow grow this ability is foolishness... but there are such things as real estate agents, and there is an obvious tenant in the form of the previous owner. Setting a rental price might be tricky, but it's a lot easier than setting a fair market price for bundled mortgage securities. Even if the owner doesn't wind up there, better to rent it at section-8 prices than let hundreds of thousands of dollars worth of house burn up because no one was there to hear the smoke alarm go off.
Finally, whatever you feel about the economic justice of people who bought houses beyond their means, a side-effect of the foreclosure boom is that a lot of renters are getting evicted when their landlords are foreclosed upon. This is crazily inefficient, and it should be stopped.
The first place to look is the lawyers. Whenever there's money bleeding out of a system you can be sure lawyers are benefiting. In this case it's about the record number of foreclosures, which are very expensive for the banks. We need a "safe harbor" law to let people walk away from underwater properties. No bankruptcy, no lawyers, just a law that says if a homeowner wants to be rid of a property he can fill out a standard form, sign on the dotted line, and walk away. This could be a government homebuying program, or a requirement on the primary lender, or something else, it doesn't matter, as long as the lawyers get cut out of the feeding frenzy.
The next place to look is vacant properties. How inefficient it is to have houses go vacant and therefore unmaintained? These are also a health risk (mostly from mosquitos breeding in the pools) and drive down nearby property values. Banks don't have the resources to show properties and mandating that they somehow grow this ability is foolishness... but there are such things as real estate agents, and there is an obvious tenant in the form of the previous owner. Setting a rental price might be tricky, but it's a lot easier than setting a fair market price for bundled mortgage securities. Even if the owner doesn't wind up there, better to rent it at section-8 prices than let hundreds of thousands of dollars worth of house burn up because no one was there to hear the smoke alarm go off.
Finally, whatever you feel about the economic justice of people who bought houses beyond their means, a side-effect of the foreclosure boom is that a lot of renters are getting evicted when their landlords are foreclosed upon. This is crazily inefficient, and it should be stopped.
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inefficiencies = opportunities
Date: 2008-09-30 06:01 pm (UTC)Though, it's really scary and I'm quite sure I'll be losing a lot of money with the investments I have (in the short-term, maybe even over the next 5 years); I think it may be best for the bailout not to happen. Patching up a broken system may just prolong the problems with have. Part of embracing the market approach is to let the market cycle completely. Let it fail and be rebuilt. A fresh start allows us to rethink a lot of stuff, make adjustments and solve current problems. There will be short-term pain at the very least, but maybe it's important for us to feel that pain, learn from it and recognize the new opportunities.
I guess I'm spouting the standard Republican (or Libertarian) line here, but I think they may be right. I'm concerned that the more we move toward a heavily socialized and government-controlled economy, the more it will resemble the gigantic mess the Soviet and Chinese economies were in the mid 20th century (with vast inefficiencies, massive errors, and just fundamental flaws that lead to massive human suffering). Sure, the market approach is flawed and has its ups and downs, but it's not clear what would be better.
I think the government could help best by encouraging entrepreneurship to solve the problems you're talking about. A smart businessman could create a company that offers streamlining of these upside-down mortgages and bridging of foreclosure evictions. Another company could provide services to maintain abandoned properties. OK, maybe there isn't enough available capital available to start new businesses like this, but here's where the government could help by providing business loans to get them started.