The conventional wisdom is that the subprime housing crisis is stalling America's economic recovery and stifling consumerism and that vacant or abandoned housing must be demolished to reduce supply and stabilize bloated home prices. These misconceptions merely camouflage the underlying problems:
- structural unemployment resulting from the export of U.S. jobs, industries, service functions research and development, and revenues instead of goods and services,
(A) The jobs crisis can be solved through re-industrialization via cost-free legislation requiring that:
- All research and development by any U.S. Company, its affiliates, or joint ventures utilizing scientific discovery and/or new design, processes, and materials developed or created by any U.S. government agency and/or institution or sponsored and/or supported by government grants or tax credits must be permanently conducted and kept domestically until otherwise authorized by government.
(a) educational, technical, and apprenticeship training partnerships between industry and school systems combined with extant government skill training programs; (b) utilization of abandoned or surplus industrial facilities modernized and equipped to maximize productivity; and (c) cost-efficient universal health care and need-based Social Security systems made affordable by a fair, revenue neutral, graduated flat tax code (with the elimination of all special interest subsidies, loopholes, tax deductions, tax shelters, and tax havens) to save our cities and states (provide fiscal and social stability), and make U.S. companies globally competitive by relieving them of these unaffordable medical and pension burdens. Decent jobs would provide the income to maintain and/or improve living standards, increase U.S. demand for domestic goods and services, and enable or sustain home affordability.
(B) The solution to the subprime mortgages mess is deflation to market value to make underwater housing affordable through the judicial system (bankruptcy and foreclosure process) or negotiated arrangements or debt restructuring between lenders and homeowners in lieu of foreclosure. The banks, servicers, Wall Street, hedge funds, speculators and rating agencies have made fortunes out of the housing bubble and the subprime scams and it's time they took a "haircut."
It is not the purpose, duty, or obligation of government to: (a) bailout the mistakes and bad investments of the private sector whether they be business or individual or (b) enable elected officials to devise policies and/or proposals that pander for votes or campaign support from special interests at public expense. Proposed government schemes to bailout banks (again), homeowners, and Fannie Mae and Freddie Mac with refinancing programs for underwater homeowners, subsidized debt service, government guarantees, and home rental support have not and will not work. They are unaffordable, divert scarce funds from more productive job creation and skill training uses, and compound and postpone the national debt crisis reckoning. People need quality jobs and opportunity, not dependency.
The simplest, cheapest, and best solution to the subprime crisis (and personal debt overhang problem) is to change the bankruptcy laws to permit and facilitate judicial cram-downs on underwater home mortgages to market interest rates and values and limit fees, penalties, and legal costs through the restoration of the former usury limits of 6 to 7 percent for interest and restore former personal debt forgiveness regulations. This would:
- not cost the federal government anything, not add to the national debt, minimize government involvement, and place responsibility and cost on the culpable private sector parties where it belongs;
It would be insane and shortsighted to destroy good housing stock to reduce real estate tax obligations or maintenance or insurance cost requirements on repossessed properties.
Benefits: (a) A government laissez-faire subprime policy would save taxpayers billions and make underwater housing affordable through market revaluation, (b) Re-industrialization would create the jobs and revenues necessary for economic recovery and debt reduction and (c) Viable universal health care and Social Security systems made affordable through a fair graduated flat tax code and need, cost, and delivery-based efficiencies and reforms would enable re-industrialization and make domestic low-tech outsourcing feasible.