Wednesday, September 24, 2008

Getting It Right?

From the WSJ Opinion page.

This is an interesting idea. Use the bail-out to buy homes, and in some cases neighborhoods, and demolish them. Get rid of the toxic supply. NIMBY of course.

I'm still wondering why I haven't seen many people talking or pressing on the issue of how we are funding this bail-out (increasing the public debt by ~10%).


Anonymous said...

The idea is interesting, but if you bulldoze a home, then the chance of recouping some of your loss is gone. If you buy the security with an equity in its profit (a point which is critical to this bailout as you previously mentioned), couldn't the $700B turn into much less in 15 years if the housing market recovers?

PassTheChips said...

A $700B investment is a lot of clams, especially when it is debt. I don't look at this as a maximizing profit investment. I look at it as a let's see if we can somehow minimize the losses investment (and keep some semblance of order). Paulson and Bernanke have said that they don't know if the bail-out will even work, as what they are proposing doesn't get to the root of the problem, which is all of the empty houses that aren't being paid for.

Why not instead spend tens of billions, wipe out the bad supply, and then watch as the mortgage backed securities become more valuable because they now represent only good supply?

I'm not saying it is the solution, but it should at least be considered by our elected (and non-elected - Paulson and Bernanke) representatives.