Monday, January 26, 2009

26 / A Modest Proposal

I have a modest proposal for helping to resolve the housing/banking crisis. Please feel free to appropriate it as your own, as you communicate with your political friends and elected representatives.

I propose that when taxpayer money or governmental intervention (like bankruptcy protection) is used to help “bail out” individuals and businesses adversely affected by the collapse of the housing market, that there be a condition placed on the “bailout.” This would all be voluntary, since federal assistance isn't mandatory, but if an individual or business receives federal assistance, one of the requirements of the bailout ought to be that the title to the distressed properties involved pass, briefly, to a governmental institution (pick your favorite federal agency), and that when the federal government passes on the title, to whomever it goes (whether to an individual or to a financial institution) a condition be placed on the deed that will restrict the future sales price for that property to a price that could be afforded by a person with an average or below average income at the time the future sale is made.

A “resale restriction” like this, to contain future housing costs, and to make housing more affordable in the future, is already used in many places (like Santa Cruz County) as a condition of what are called “inclusionary housing” programs. The system works! I am suggesting that the “price” of providing bailout money or federal intervention ought to be a reasonable “price control” on housing that has received such federal assistance, so that the public will get a kind of “buffer” against future speculative housing price increases, driven by private market transactions, and that a future supply of truly affordable housing will be an outcome of the bailout assistance we provide today.

I was stimulated to post this idea for others to review by a newspaper discussion about Republican Party challenges to a Democratic Party proposal to allow bankruptcy judges to rewrite the terms of existing mortgages, so that homeowners who bought properties they couldn’t really afford won’t lose their homes. Other proposals, made earlier, and initiated by the Republican Party, were focused on how to provide money to various financial institutions that made bad investments in housing; again, investments that they really shouldn’t have made. As is typical, the Democrats seem to be looking out for the “little guy,” and the Republicans seem to be looking out for “business.”

Unfortunately, we are all affected by the improvident decisions made by both individuals and businesses, as many ignored the speculative nature of the runaway housing market that ultimately, and inevitably, crashed, and that is one of the major reasons for our current economic crisis. I guess most people didn’t have fathers, like I did, who demanded that their kids read “Extraordinary Popular Delusions and the Madness of Crowds.”

At any rate, most of the proposed solutions to our current economic problems, however focused, involve the expenditure of billions of dollars of “our” money (i.e., money from the taxpayers; or, more accurately, money that current taxpayers are obligating our children and grandchildren to repay). What are we (the people, and our successors, who are slated to pay the debts) going to get out of the “bailout” schemes being proposed? I suggest that we should get something in return for the public money and public assistance to be provided, whether to individuals or to businesses, and that this something should help prevent another housing bubble in the future. Hence, my modest proposal. Again, please feel free to pass this idea on!

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