Solving the sub prime mess

Discussion in 'Economics' started by PocketChange, Sep 17, 2008.

  1. From one of my favorite sites:

    Solving the sub prime mess
    A home tradeup program to solve credit crunch
    (+6, -2) [vote for,

    Hi there! Been a reader for some time, but this is my first post.
    This occurred to me yesterday while hearing about the AIG bailout. The fundamental issue of the current financial crisis in the US is that the banks have no cash to lend, as it is all currently tied up in defaulted mortgages. With no money to lend, no one is able to buy houses, so the value of the repossessed property drops. Additionally, there are too many houses on the market, as builders overbuilt during the bubble. More supply than demand, so when the bank repossess a house that was mortgaged for 500K, it can't sell it for that to recoup the cash. Plus, no one is lending, so no one is buying even at discounted rates.

    The only way out, it would appear, is for someone with cash to buy the houses, giving the banks the liquidity they need to start lending again and kick start the whole process once more. Enter the government.

    Instead of giving massive amounts of taxpayer money to companies whose greed started all of this to begin with, they can do something that will actually have direct and tangible benefit to the people. They start by buying the foreclosed houses at reasonable market value. This gives the banks the money they need to start lending again. Now the government has spent the people's money on houses. So, how do the people get value from this? The government instigates a trade-up program. You trade your current house, wholly owned or with mortgage in good standing, and get a bigger/better (previously foreclosed) house. You keep paying the same mortgage, you just have a better (and more valuable when the market recovers) house.

    So everyone trades up, and the government (over time) has a collection of smaller, low end house. Some of them they can sell at market value (remember, the banks have cash to lend again PLUS there is a larger market at the low end of the scale). But they still have too many units (remember, the builders overbuilt). These final units they use to give a helping hand to the homeless. Give a free home to those most in need, instead of bailing out a corporation whose greed started all this to begin with.

    Remember, the government is paying anyway (bailouts). At least this way, everyone gets something. The banks can continue to operate because they have the cash they need. Homeowners get a bigger home for the same money. Entry level buyers get a good deal. And deserving families get a helping hand.

    wuj3888, Sep 17 2008
  2. joemiami

    joemiami Guest

    LOL....another idiot who knows all the answers

    NO ones going to get a free house just to thin the inventory you dumbass

    Whats next? are the homeless going to pay for prop taxes, utility bills.....homeless people generally dont have even have a chkng acct !!...let alone a job!! What are you going to do? start them off with a free 5k-10k to get them started?.....LOL

    I think you have been smoking the same crack they have been smoking

  3. Dude... this was from the halfbakery ;)
  4. pitz


    Why would the housing market 'recover'? Its currently reverting to something that more closely resembles fair value. Fair value being essentially, construction costs (land has no value since it is essentially infinite in the United States).

    Since there are more houses than people to occupy them, the price will probably drop below construction costs.

    Anyone who thinks that houses are 'cheap' and will go up in a few years is living a delusion, unless hyperinflation occurs, and even then, hyperinflation will not hyperinflate assets that are fundamentally not needed in the economy.
  5. I have a better about we just sue all the people that walked away from the houses for the amount of money they owed on it minus what the banks ended up selling it for. After all...most of those homeowners trashed the houses before getting forclosed on. Sounds fair to me to sue them and garnish their wages. Also make it so they cant declare bankruptcy on that debt, just like student loans and taxes! That'll get our economy back on its feet and the greedy people that bought on speculation will pay for this mess and not the rest of us.