Dear Money Morning readers:
To every one of you (and there were more than just a few!) who took the time to comment on my housing-fix plan, thank you. I read every single comment, twice.
Money Morning readers have always impressed me with their insights and activism. That's why I write for Money Morning, I get to have a "conversation" with you, which motivates me, enlightens me and always keeps me looking at every side of all the issues I write about.
Here are some of my thoughts on your comments:
First of all, it's not possible for any comprehensive address of a problem as deep and wide as what our housing market is facing to be perfect. There is no such thing as a simple solution to such a complex set of attendant issues. And, no matter how exhaustively researched and designed a packaged solution is constructed, there will always be unintended consequences and naysayers who would rather complain about the status quo than change it.
Phil Steinschneider commented that my plan was too complex. I don't believe it is. There are a few "moving parts," but the plan essentially supports a financing component and a price-stabilization mechanism based on tax credits. As for Phil's insight that too much manipulation and stimulation caused the problem in the first place, I agree. It's just that sometimes it takes a bit of counter-manipulation to swing the pendulum more to its center.
Juan and a few other commentators believe that promoting a sensible immigration policy would help better balance supply and demand. I agree with all of you. Unfortunately, as much as we would like to see our incomprehensible and exclusionary immigration policies addressed, the likelihood to tackling two seemingly intractable problems at the same time is probably impossible in our charged political theater.
There were several comments about letting the free market work and just letting housing prices fall to their lowest common denominator. Patrick, for one, wouldn't mind seeing prices collapse. I am all for the free market. However, markets are never free. They can't be in a complex econometric model like the one we've set up and live in. In theory, I'd like to see "freer" markets, just not so free that they become a "free-for all." And with good reason: The truth is that by freeing up banks through deregulation, we fostered the greed factor, which ran unchecked and helped drive us over the cliff. Can we really afford to see a wholesale collapse of housing?
Even Charles Scouten, who thinks we should trust the free market to determine the mark-to-free-market" (my phrase, not Charles'… but, hope you like it) value of homes and mortgage-backed securities (MBS) by making banks sell some portion of their inventory into the real world to engender true price discovery, has a not-so-free component to his free market. Charles inherently saw the need for banks to be forced to sell (that's not a free market) and have a "supervised" (by government) valuation methodology and process. Even in the hope that free markets are the answer, less-than-free-market oversight is almost always contemplated. It is either free, or it isn't. But I do get where you're coming from Charles.
Wayne Harper is absolutely right. Banks are not working with homeowners or buyers. You are right Wayne, starting a bank is a good "if-you-can't-beat-‘em-join-‘em" solution. Let's not waste any time. We need to open a branch soon and run hat-in-hand to the Fed.
Among the many comments there were also several great ideas that I will work into my plan to make it better. Verland Talbia Gillan has a novel idea (that banks will never allow, but someone might give it a try) to tinker with amortization scheduling to build equity as fast as you are paying interest. Chuck Rymal wants to address the impact of the housing collapse on credit scoring. Joe Ball sees advantages in making loans easily assumable and more "potable."
I loved and wholeheartedly agreed with Ian Davies' wishful thinking that the Fed's privateering (my phrase) be ended once and for all: Hear! Hear!
And, perhaps best put by Roger Wickes, who has been living the housing nightmare as have many others out there, the problem isn't just housing: As he notes, it's "the economy, stupid." Specifically, as many of you said, it's about jobs. You are right, of course.
But that said, and agreed with: Maybe by fixing the housing market we can actually save and create some jobs. Is that so stupid?
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
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