Last week I attended a conference about the housing crisis in Washington, D.C. Speakers included several senior Administration officials and members of Congress.
I learned what the government is doing and thinking.
Here was my take on what I heard:
The people handling the government's approach to the housing crisis are bright, well-intentioned and committed. They are also academic, theoretical and insulated. For the most part, they are life-long public servants or politicians. Nothing wrong with that, of course. They can just get a little lost when trying to connect the dots in the street.
Life-long public servants tend to lose contact with how real people act in real situations. The way they obtain information is from government reports and hearings. The people from whom they learn usually have a job to protect, an agenda to sell or an unfounded deference. This view from 30,000 feet is nice I guess but not much help when dealing with a problem that arose on Wall Street and Main Street at the most granular levels of human greed, negligence, ignorance and disinterest.
As we all know, the housing crisis had many mothers. But, trying to understand and address it from 30,000 feet is, in my view, a mistake.
That is why I say bring in the entrepreneurs. Create a contest and invite entrepreneurs to come up with ideas for slowing down foreclosures and addressing falling housing prices. The winning ideas would receive government support (financial or otherwise) with the entrepreneurs standing to gain a lot of money if their suggestions work (and lose money if they don't).
Now watch the ideas fly. People who have their money on the line - and with the opportunity to make big money if their ideas work - tend to be very creative. If necessity is the mother of invention, opportunity might be the father.
Entrepreneurs will stay up long hours, work day and night, risk money and relationships if they believe they are on to something. The fact is that we have a real issue with U.S. housing - foreclosures are not slowing down, the government's ideas for modifying mortgages have not taken hold, housing prices are stabilizing a bit but only at the very low ends and consumers still are unsure about real estate.
I say turn the entrepreneurs loose. Yes, put governors (not the elected type) on the ideas so nothing crazy gets tried. But who knows what "crazy" is today anyway. Our country was built by nutty ideas carried forward by men and women who had something really serious to gain. Let's turn these people loose on our big challenges of the day.
Jim Randel is the founder of The Skinny On book series. His book, The Skinny on the Housing Crisis, was just awarded first prize in a book competition sponsored by NAREE - an association of 650 journalists and professionals with interests in housing, finance and business.
Follow Jim Randel on Twitter: www.twitter.com/jimrandel
How can you discuss solving the housing crisis without examining what previous government laws and regulations contributed to it? For starters – the Greenspan Fed flooding liquidity into the system after the tech bubble burst, only to inflate another bubble. The Community reinvestment Act of 1977, essentially forcing banks to loan to the least credit worthy. Or the CRA revision in the 90’s allowing banks to unload loans to the likes of Bear Stearns, thus removing responsibility from the banks for the performance of the loans? Or govtsubsidization of Fannie and Freddie – while not causing the crisis certainly fanned the flames of sub-prime lending. One could go on and on. What’s clear is that government oversight, intervention, regulation and subsidization of the housing industry is what led to the crisis. Bringing in the entrepreneurs is a great start!!!
One crucial reason why free market capitalism triumphed over central planning, communism, and fascism in the 20th century was because capitalist systems left the allocation of capital to individuals (entrepreneurs) and free markets – and not government bureaucrats!! The greatest innovations of the industrial age (from the steam engine to the MRI), have been developed despite government regulation and intervention in the marketplace, not as a result of it.
High housing prices hurt people.
And falling housing prices are a blessing.
We need somebody with guts to re-evaluate our economy to its true pre-speculation pre-Reaganomic valuation, period. I whole heartedly agree, college educated, join the system dweebs are not going to get it done. I voted for the dweeb in chief and see his fascination with clods who spent four, six or eight years in college learning from academic faux world incompetents. Putting a band aid on the banks and insurance implosion only infected the growing economic festering malignancy. Feedership has replaced leadership. America is in hock, driving an over leveraged foreign made polluting death wagon down an unpaved street. Truth is, the U.S. needs to find a used American made, paid for, reliable vehicle and pave its way to a solid future. *sigh*
And even if that were to happen, can you imagine trying to get 104 million people to agree on anything? I'm guessing that's how many voting age people would need to mutually agree on the changes to the constitution required to make this country a true democracy.
Unfortunately, our revolutionary past died at the end of the civil war. Today we're left with a fat, lazy, citizenry uneducated in civics, and uninterested in their country's history or anything else beyond which celebrities are on what reality television show or what the latest video game rage is.
The general public's lack of knowledge and interest in their children's, grandchildren's, and even their own health care is just the latest evidence of their apathy.
Pathetic . . . .
And forget the bad ol' government up there at 30,000 feet.
Enough government bashing. This country had a bank run and crash on average every 10 years from it's inception, right up until Roosevelt put the brakes on private sector greed, corruption, and exploitation -- and then we had 50 years of relative prosperity. Of course, that prosperity began to unravel when Reagan put the entrepreneurial private sector back in the drivers seat and got the bad ol' big gubmint off the back of the private sector. And it accelerated after Clinton undid the Glass-Steagal Act and tghe completely cratered and crashed after Bush completed the cycle with his "reforms."
Hmmm. Is there a trend here?
Why yes, I believe there is. It seems whenever we let the private sector do as it pleases and unleash the entrepreneurs, bad things happen.
Not surprising, really. Their purpose it to maximize THEIR return, not foster the common weal. If we've learned one thing from this boom-bust, regulate-deregulate cycle, it is that the invisible hand needs to be watched and constrained, or it will steal us blind.
The absurdity of your recommendation is monumental. You are mouthing stuff that has nearly destroyed this country and our economy, and you don't even seem aware of the history and empirical data that shows you folly.
Scenario 1:
Instead of injecting capital into the banks the government should have purchased the loans in foreclosure from the current investors for 5 to 30 cents on the dollar (about the same amount the bank would receive after foreclosing anyway) then instead of foreclosing, rewrite the purchased loans to reflect current market value or allow the homeowners to refinance at current market value with the government holding the paper or a different lender. If a new lender finances the homeowners at current market value, the government gets the cash they invested to purchase the toxic loan plus a profit in many cases. The original lender gets the toxic asset off of its books and the homeowner gets a payment they can afford and remains in their home.
Scenario 2:
Loans generate revenue of approximately 3 times the amount borrowed if brought to term. Simple math: gov pays 20K for 150K mortgage on home at risk but collects interest on current market value of 100K. Loan is removed from banks balance sheet without showing a loss, homeowner stays in home with new lower, affordable payment, neighborhood values stabilize, Gov saves 85K in guarantees by spending 20K plus receives interest on 100K for the life of the loan, economy stabilizes by injecting money from bottom up as it should have been from the beginning.
You can't make money in a con game unless you are running the con. Asking people to bring their money into this as long as it is still just a con game is just plain dumb - and that is the response the government has gotten every time they have run that idea up the flag pole so far.
Well ..... knock your self out folks.
But, before you start your next effort, please tell us how many more kicks at the can you will need.
The last one was a doozy ...!
You should take a landing from your 30,000 ft aerial perspective. They are loose.