>I'm sorry, but fuck the homeowners, they are driven by greed and delusions
>of the "property ladder" just as much as the lenders, why should they be
>rewarded over renters and residents of co-operative and public housing?
>
>Bailout people with effective social housing and effective social benefits.
>Create an society where people do not require life-long wage-slavery to pay
>life-long debt for the privilege of having a place to live.
>
>Natural, nobody on this list, nobody in washington, london, berlin or
>ottawa will be interested in that line of thinking.
I'm interested in that line of thinking. Though I think you are being a bit .rough on home buyers.
My thinking is that the proposed solution doesn't really address the basic problem, which is that there is a lack of confidence in the transparency of the big investment banks.
The basic problem is a property price bubble is it not? Trillions of dollars have been loaned to purchase property at inflated prices, often to borrowers who can't afford to repay and have no collateral (other than the value of the houses they are borrowing to purchase. The lenders have gambled that property prices would continue to inflate.
Frankly, it seems to me that any solution must include at least two elements:
1. Greater transparency about the actual losses suffered by the lenders.
The problem isn't that these lenders lose money. That's not going to undermine the economy. The problem is that those who have lost money won't fully admit their losses, and or that no-one will believe that they have fully admitted their losses. In theory, all that is needed is to force investment banks to properly value the properties they hold mortgages against and make public the results. This would make it transparent what their potential losses actually are. This needs only some onerous regulation and a team of auditors to put in place. Relatively cheap.
2. the other essential element, it seems to me, is to ensure that the property bubble is well and truly popped. That nothing is done which might tend to prop up property prices. They need to fall and they need to fall a lot. For one thing, so that potential lenders can have confidence that they won't fall any more and thus a mortgage can once again be regarded as adequate security for a loan.
One way of getting at this, would be to provide interest rate subsidies to owner-occupiers of houses paying off a loan which exceeds the current valuation of their property. Make it only available to owner-occupiers (not landlords and other property speculators). Make the subsidy equal to interest cost of any part of their loan which exceeds the valuation of the house. (So if the house is valued at $200K and the home buyer owes $250, the federal mortgage assistance would amount to the interest payable of $50K.
Home owners would thus have a strong incentive to continue to repay. But also a very strong financial incentive to get a realistic valuation (as low as they can get the valuer to go) on their house with which to qualify for the federal mortgage interest subsidy. Put a means test on it if you like.
A certain amount of that assistance would trickle up to the banks. But at the cost of a good bit of property price devaluation. The effect of this devaluation would be to make housing more affordable across the board. helping everyone, except the property speculators, many of whom would go bankrupt. (Thus satisfying the American public's deep-seated need to punish someone. And the punishment would closely fit the crime too.)
I don't think punishing home buyers is appropriate, these are just people trying to get by in the environment they find themselves in. Renting is a real bitch when renters effectively have no rights or security. You can't blame people for trying to escape that. In fact why not help them, by deflating the real estate bubble to make housing more affordable?
Anyhow, that's the outline of the Bartlett solution. ;-) More details can be provided on receipt of a very large consultancy fee. (Cash if you don't mind.) I wait to hear from my little mates in the White House.
Bill Bartlett Bracknell tas