Sunday, December 7, 2008

How to End the Housing Collapse Now

Ending the housing collapse, the root of the entire world's financial problems, is a simple matter, even given its vast scope: Let's just say Congress decided to purchase every foreclosed and foreclosing property in America.

Estimate 10,000 properties per state (probably low, but good for an easily calculated starting point). At a per home value of $150,000. Total purchase price would be $1,500,000,000, i.e. $1.5 billion dollars.

Keep in mind, we just spent over $700 billion in one swoop to purchase bank securities and another $700 billion to purchase bank stocks. If we invested $700 billion in housing stock, we could purchase 4,666,667 homes directly, which is over 93,333 homes per state, obviously way more than is actually needed to end the collapse.

Rather than purchases bank securities and stocks, which are falling rapidly and could fall to zero, purchased homes would never fall to zero, and would be a real investment that would pay off in time. It would also immediately stop the housing value collapse, which is destroying banks and causing a general deflation, as well as destroying the lives of millions of American citizens.

The trick is for the government to be the purchaser of last resort, to prevent the houses from foreclosing. The government could then rent the properties to the people who are losing them, keeping people's lives intact, and give them the option of purchasing them back at cost when their situation improves. Or if the residents didn't want them, the government could sell them on the open market.

In either case, the government would establish a price floor, ending the deflationary cycle that is putting more and more people upside down on their mortgages every day, leading to an ever-widening cycle of foreclosures and deflation.

Our economy does not have to go in the tubes, but we have to take the right steps, right now. Please spread this idea, at least forwarding the email to your friends, coworkers, talk show hosts, public commentators and voices of all sorts, and not the least of all, your Representatives and Senators, who can pass the laws to get this done.

1 comment:

Mberenis said...

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