How the U.S. Housing Market Can Save the U.S. Economy

the government should have no intervention, the housing market must be free like in a real free economy

I write this from England, so thankfully the US housing bust does not affect me directly. I visit America and I am aware of the type of ohusing bulit there recently. UK house prices have also dropped slightly recently but there the similarity ends.

Shah's plan is probably the best plan to date but here are my key concerns.

1/ Too many houses have been built in the US generally and in some states significantly so as to exceed the number of buyers who have the income to sustain the mortgage cost – even at todays record low interest rates. I would consider scrapping several of these houses. For the 2 reasons below.

2/ We have a deliberately created shortage of housing in UK, which forces some young couples and singles to stay with Mum & Dad, while they save up. It creates a pool of first time buyers who can afford the mortgage and gives then a general confidence that if they do go underwater on the loan it will not be long before house prices catch up. This in turn creats a floor under house values for all houses except the multi million top end.

3/ Because of the importance of a house as part of a family's expenditure the houses built in UK have to be to a standard which will last 100 years. Otherwise they do not sell and will not get a mortgage from the lenders. That is not true in US where houses of flimsy contruction are tolerated because the owners can set off depreciation against tax (unheard of here) and typically wil knock down and build again on the same plot.

So part of the solution has to be the building of better houses in US and the destruction of the macMansions now in oversupply. Perhaps (and handy since the government is skint) ending the tax reliefs for depreciation of the value of a house would also ensure buyers insisted on better built houses.

The best way to fix the housing market is to stop building such gigantic homes with so much square footage. Build homes half that size that people can actually afford. Do not let someone who makes only $50,000 a year buy a home that costs $200,000 or $250,000 with a mortgage payment of $1000 to $1500 a month. Heck if you make $50,000 a year buy a home that costs $50,000 or maybe no more than about $100,000 a year.

Banks and corporations are the people you have to convince if you want legislation. Taxpayers have little clout in Washington. Taxpayers should be marching in the streets as they did in Cairo. Maybe when we get hungry.

That's all well and good. The bottom line is this. People who's lives have been devastated by this economy (loss of job, etc.) still will not be able to get their lives back because of poor FICA scores. In other words, No one will lend you money (for a home,etc.) because of a poor credit report. So we can talk all we want on how to fix the economy. For the people who's lives have been destroyed. They just try to survive day to day.

Mr. Gilani,

Once again, I laud your attempt at coming up with a solution. And I'm giving it another whirl. But first, I'd like to make a few more comments.

You state that "sometimes an engineered soft landing is easier to bounce back from that a full-blown crash." Regrettably, I completely disagree with this statement. Time and time again in history, an economic slap on the wrist is simply not enough to trigger behavioral change. A crisis must happen in order to clear out the garbage. Otherwise, the rot remains and resurfaces another day.

Arguably, a lot of the economic problems we have now are directly attributable to actions taken over seventy years ago. Because of complicated systems established after the Great Depression that created innumerable perverse incentives and moral hazard, we're only now suffering the consequences of those actions.

Our continued meddling in the markets has sown the seeds of a much greater economic collapse. If only Hoover and Roosevelt hadn't intervened so much to begin with, maybe we wouldn't have had laws to repeal in the late nineties that would once again open the floodgates to disaster. Yet still today we continue to insist on concocting further elixirs. Maybe it's time to quit.

I've argued over and over with Keynesians that they're simply a philosophical school not willing to take their medicine; that they prefer to go on taking antibiotics, creating a fertile breeding ground for the evolution of a super-bug immune to any remedy. Maybe we've finally met our economic Ebola in housing due to all of our interference over the years.

In all likelihood, because of our good intentions and regardless what we do, home ownership rates will decline below what they were before we started interfering. And that's probably the price one pays for over-borrowing from the future to have something today.

For at least a hundred years banks made mortgages to qualified lenders who produced a 20% deposit on a home. The bank held the note until the debt was paid, or sold the note to another bank if that was beneficial in some way. Under that system, the US achieved a 60% home ownership rate. What’s wrong with going back to the basics? There would be some initial pain to suffer, but the foundation over the long-term would be much more solid.

You, Mr. Gilani, are clearly a very optimistic man who believes he can develop a solution to solve an extremely complex problem. But what if what we try to do today simply makes things worse or kicks the can down the road and ends up bankrupting or great-great-grandchildren?

Humans are famous for trying to come up with explanations for the unexplainable; solutions for the insoluble; and possibilities for the impossible. Is there a chance, however small, that doing nothing might be the best answer to the problem?

There is some merit in the overall plan.

BUT:

Yes Fannie and Freddy need to be eliminated or changed. If they went back to what they did a long time ago, package mortgages into bonds and then the bonds were sold on the open market. The bonds would be covered by the mortgages only. Period. Fannie and Freddy have no assets. they can't go bankrupt since they don't have stockholders, they have no real assets per se, and operating costs are covered by servicing fees. The Bonds are still on the books, and covered, by the mortgages and nothing else regardless of what happens to F&F they are just the packagers. But that would be too much to ask most likely.

Before Fannie and Freddy became so dominant, banks either used their own money, or mortgage companies sold the mortgages to insurance companies, who held onto them. A Tobin Tax would help eliminate the "churn" in mortgage trading.

Then there is:

'But it also puts a strict time limit on these initiatives, meaning the government intervention will eventually expire and allow the free market take over once and for all.'

Good luck with that. Washington is all for Keynesian economics during "troubled times", but completely forget that during times of "boom", the government is supposed to pay back the debt according to Keynesian economics. If they can't even follow that basic prescription, I wouldn't count on them keeping something temporary actually temporary. (the Temporary Rent control in New York City instituted during/for WW2, extended into the late 1960 and then even beyond that in a modified form). Past history indicates you can count on them forgetting those basic principles, and reneging on previous promises.

But 2 big problems. One: as big as the housing market was, it was driven by other forces than strictly market forces. Specifically the home interest income tax deduction. It skewed the market to larger more expensive houses. In doing this =housing was a larger portion of the US investment account than it should have been. It therefore soaked up capital that should have been used for investments in plant and equipment, R&D and Infrastructure. As a economic multiplier, housing is the least efficient of those. In short, the housing market under normal times was larger than it should have been. For best use of capital, you don't want an over blown housing market.

The second is demographics. New housing demand is a function of new family formation. 1) currently there are fewer people than in some prior years in those ages that form family units. 1a) those people aren't forming family units; many aren't even leaving home! 2) soon to be higher levels of family unit "unforming" as the baby boomer continue to age (either by death or moving into specialized retirement arrangements) 3) the huge oversupply of the past few years. The only "rosy" part of the housing market it seems is that specialized portion that will cater to the baby boomers going into retirement, either into retirement communities or smaller houses with only one floor. Of course that also depends on the baby boomers actually being able to afford to do that.

If the market were to truly work, housing would become a smaller portion of the economy. It's been pumped up by Washington policies for some time now.

Also, as long as all the borrowing (or most of it) was internal to the US, there may have been a some justification to pumping up housing as a way to pump up the economy. But now, so much of our borrowing, federal and individual, is financed from overseas; pumping up housing on money borrowed from overseas (either directly or fungible/indirectly), does not seem to be a good bargain. If fact it's probably a bad bargain given the consequences of over spending in housing.

For the economy to get back up to speed (really working on its own without temporary distortions) , I believe we need to get our manufacturing base back up. Housing in the "near/intermediate" term, cannot replace the manufacturing sector's decline.

More layers of government intervention will only add fuel to the burning house. The problem is that government regulations created the housing boom (which the Wall Street bankers happily collateralized). This pushed prices ever upward. Now they need to return to a sustainable level. This is being delayed by (of course) more government regulations. Consequently banks hold non-paying assets instead of selling them. Buyers aren't stupid and therefore sit on the sidelines watching prices decline to levels supported by income rather than speculation (In Southern California this would be 2001 prices). And all the government bailout programs just waste more of our children's future. The result; we prolong the pain and spend the future now.

Yes but wouldn´t Fannie and Freddie go bust trying to compete with lower interest rate loans.
That would leave an even bigger hole in the federal budget.

Have you read "Triumph of the City" by E, Glazier?

He laments North Americam tax bias towards (single family) owneer occupied hmes.

German experience (very low urban owner occupation) would appear to bear him out?

i read your article with much interest. As a non US citizen I wish you every success in getting your proposals implemented. I believe you are on the right track. The housing situation needs some tough decisions and some tough political backing. Arguments need to be won. You will probably be stonewalled at every turn and you will need to stay focused. Your plans need to be implemented as quickly as possible, otherwise it will be too late (in my opinion).

I am presuming you have found like minded individuals to share your 'Board' and using your money morning site is one excellent way of broadcasting your message. Taking that just a bit further I presume your contacts are in touch with TV broadcasters etc. (Have you thought of putting your message to video and sending through Facebook and other social media, Linkedin and other professional media).

Best wishes

Ronald

How to solve the housing crises.
I am a Realtor and have been licensed as a broker in New York, New Jersey and Florida. I have been selling real estate for over 35 years and there is no question that this is the worst market we have ever been in since the great depression. I think your idea of a pool that the banks can draw from is a good one and I think the best idea is a tax credit like the one that ended about a year ago. That tax credit seemed to work well and helped to clear up a lot of inventory while stabilizing prices. I think some form of, government and/or privet entity needs to be formed that will look over the whole picture of the foreclosure properties. That entity should have the power and authority to form a plan that systematically releases for sale a controlled and limited number of properties at a time with tax credits, tax incentives and low interest rates. That would entice qualified buyers and investors to buy. By doing it in a systematic way it wouldn’t flood the market at any one time, would bring confidence to buyers and investors that the bottom of the real-estate market is near and is being stabilized.
Anthony L Balestrino GRI CREA

I think a simple plan would be to have all mortage holders reduce rates to 2%, espically from banks that use government free money to borrow and then loan out. This would instantly free up the extra 3 to 5% that banks charge people and then indididuals could use that extra money to buy things thus stimulting the economy with all the money the banks and gotten.

I like this plan a lot, except for the one glaring omission: people without jobs can't be buying houses, and in so many cases are still losing their houses to foreclosure. That said, I agree that a fix to the housing market will be a great catalyst to fixing the entire economy. Two minor adjustments need to be included in this plan: The tax breaks need to be tied not to the overall value of the home, but to the relative value – the price per square foot. Someone who buys a 2500 square foot home for $350,000 doesn't deserve the same tax break as someone who buys a 1600 square foot home for the same $350,000. Second, the tax credit needs to be indexed to some level of local home prices, more granular than just the state. A$1.5 million dollar home in Boulder, Colorado or San Bruno, California is only a $75,000 home in rural Mississippi.

The tax credit idea is in use in Australia (it encourages negative gearing) and distorts the market as it pushes up prices (contributing to bubbles) when people buy simply to get tax rebates. This pushes lower income potential home owners out of the the market. The tax credit idea is therefore, from this point of view, initially effective but must be discontinued (a sunset clause) for all future buyers after the market is stabilised. Great care must be taken to ensure that the credits do not continue into the future as they have in Australia.

The author of this article is just another big govt person.He believes that his plan,forced on others, can fix all these problems. Why not just let the markets decide?Of course,the only way you get to a free market, healthy housing sector, is for the people in the country getting wealthier.That would take major changes in our economic system,including a much smaller govt,that isn't likely to happen.

I'm not an economist or a financial whiz, but this seems very much like a solution I've been thinking about for a long time but have never heard proposed. In addition to the reasons Mr. Gilani suggests, I believe that people's inability sell their homes has greatly contributed to the stagnation of the economy. When you can't sell your home, or rent your home, you have little freedom to take advantage of employment or business opportunity that would help get things going again. People are stuck – they remain where they are, which damages the economic recovery, or they walk away from their home, which does the same. The most critical cog in the wheel is now, and has been, the housing market.

Although against government intervention and specifically subsidies, there is merit in the plan. After all, the winding up to this problem is so complex and integrated into the decision mechanisms that determine price, that it appears reasonable to unwind the governmental intervention events to create a stable landing. However, the home owner tax incentive for new mortgages may not stem the foreclosure bomb of 880,000 homes plus about 40% of homes with mortgages being underwater causing concern for more future foreclosures. To help in price bottoming, the underwater home owners need an incentive to "stick" it out. Perhaps the underwater delta could be a tax deduction amortized over 4 years to keep the house out of foreclosure. That reduces the supply of homes. The local property tax assessment subtracted from the purchase price of any home since 2004 is the delta to be amortized. This way, the confirmed transaction is for each local market specifically. In 4 years, the bottom will have been reached and recovery begin. The delta would change with each tax submit ion over the four years. Therefore, as home prices recover, the tax incentive is reduced. Thus, flowing more tax revenues as the program moves to sunset. This could be for all mortgages since 2004 including ones during the the incentive period. This would afford "NEW" home buyers a level of confidence to purchase without delay because there is a measure of protection for their home investment.

Agree 100% about stabilizing the economy by putting a floor under real estate. Also could incorporate a "PAR" as outlined by investment fund manager John Hussman. He suggests we reduce the principal of problem loans today for a future "price appreciation return" on the property back to the loan originators. Get mortgage payments back to true ability to pay via earned income now — i.e. 28%.

I did not read your original proposal, but even though you have tried to explain it further, I have difficulty with it. I don't think any solution will work if it does not begin with drastic cuts in Fed.Gvt. spending. Furthermore, the primary reason why few are biting at the fire sale prices and low interest rates is that they have lost confidence in the US economy. And for very good reasons. Even with tax incentives, which I don't like, I don't see people taking the risk on a major investment that will likely decline. This is especially true when they fear their continued employment. The housing market will not come back until the underlying economy improves (not the other way around). That means job growth. Job growth will not come back until our govt. allows the private sector to create jobs. Banks will not lend money unless unless they have an incentive to do so. Right now they can borrow (printed) money from the Govt. for nothing and invest it. There is no incentive to take any risk, so they don't. They should not have that option. If they take the money, they should be required to lend it. Investment capital, (free from Gov't competition) plus an environment that supports business growth equals US economic growth. It's not rocket science.

I agree with Paul, Again no one not even you address the HUGH problem of people who are "Under Water" with their Home Mortgage. A great deal of people have simply "Walked away" and let their property be foreclosed. BUT, there are a great number of people in the country who continue to pay their monthly payments. But, they cannot sell and pay the difference in the mortgage amount and the reduced value of their home. They are not sellers or BUYERS. As values decrease this pool of people continue to grow. I have heard stats that 25% to 35% of the mortgages are in this state. If this is not addressed then we are all through. Eventually they will walk like everyone else. And you will have an increasing drop in values. I wish someone would wake up to this problem before it is too late.

Our Shah Gilani for Treasury Secretary. Then, he can implement the "Gilani Plan" and help correct a broken financial system.

Timothy Geithner, may be highly intelligent with a world of practical experience, but he is not the man for our current times. He is just a "hackey" for big banks on Wall Street.

Anyone out there, strongly connected to the White House?

Or maybe, Money Map Report should start its own grass roots campaign to help Mr. Gilani fill this highly esteemed and influential position.

Shah Gilani is the man for the times to help make it possible! He is bright, fully equipped, listens and answers to the American public. In other words, his heart is in the right place!

America needs new leaders like Shah Gilani to make radical shifts to chart our country to a new course for the next 50 years.

I agree that the housing problem needs to be fixed to have a healthy economy again.

I am a retired banker, a commercial banker that is (not a wall street investment banker) and I've made hundreds of home loans and several thousand commercial real estate loans.

The roots of the collapse of banking and the banking crisis started when Glass-Stegal was repealed in the Clinton administration with his then treasury secretary Mr. Rubin playing a heavy hand, in the1990's.

This was followed by investment banks and commercial banks merging and the credit standards of borrowers (especially home buyers) being allowed to excessively deteriorate with lots of help and encouragement from congress (think Barney Frank and Chris Dodd).

Good quality home loans have been made by our many banking institutions for many many years with few problems when important and understood standards were followed, like a good credit report, a real down payment, an accurate home appraisal and a real job and the proven ability to make the required loan payment.

It all went wrong and was distorted when the liberal Government became more involved and the FED and the FDIC backed away from long proven credit standards and overseeing the health of the banking industry.

The home lending market is not difficult to reconstruct, just go back to many of the lending
standards of the 1960's or the early 1970's which worked and update the secondary markets (possibly with limited government guarantees, again). Changes are necessary and there are many thousands of lenders, loan officers and credit officers out there who know very well what is needed to put a good loan together, and of course a few that don't.

From my expierence the most important item needed is a good credit report showing a good credit history. A credit report has long been a reflection of a borrowers character, and willingness to pay.

The plan from Mr. Gilani is a good start and the country has done it before and certainly could do it again but we need to keep the likes of Dood and Frank out of the picture as they do not know what they are doing.

There are many areas across the country with stable housing markets. I know of three personally: Littleton, CO, Casper, WY and Springfiled, IL. Any plan to incentivise folks to buy in unstable areas (bottom fish) will almost certainly hurt the folks who have to buy in stable areas in some way which would not be fair. Also, banks will always find a way to add to their bottom line not matter who it hurts, so I applaud your effort but would not support any incentives or govt handouts to get the job done.

Dear Mr. Gilani,

US Housing Solution

I have been in the real estate business for almost thirty years. I’m knowledgeable about the housing market (locally) but my main involvement is commercial development. I am generally sure of one thing in commercial development, commercial development follows roof tops and we have not seen any new roof tops attracting commercial expansion. Quite the opposite; poor housing market feeds a poor commercial market. Commercial vacancies are substantial and not improving. I can’t recall a locally financed commercial startup in the last four years either. You cannot count the shadow vacancy of the downsized workforce either. All these commercial real estate issues are a DIRECT EFFECT of the depressed housing/financial market. These trends will continue until the housing market revives.

We indeed have a “boat load” of problems to solve in this country and they need to be addressed and dealt with. Not by political ploys that get you reelected but by sound fiscal programs (that might not help some ones election status). I have always been a believer in “doing something about something, pick one a get going”. We can’t solve every problem all at once but we can take a good hard economic stance on a particular issue. You and I might say “let’s pick a solution to the US housing problem and get after it.” Your plan has many merits and does outline goals for improving the US housing market. Given the size of the issue a solution cannot come from local legislation it must be national as you propose.

As for your plan, I have read it several times and would agree that the principals will work and results will be achieved. I believe that your plan would create a road map to getting started and that would be an accomplishment beyond measure if indeed it were enacted. Sadly, the “accomplish nothing” legislative process we have in power today, I believe could not take an appropriate action to get out of a wet paper bag. Reasons: this lobbyist won’t like this or the other lobbyist wouldn’t support that, this minority political group will be “disenfranchised” by the plan, this part favors this group over that group and more Washington yada, yada, yada the quagmire of our political system could not get your plan enacted, unless………….

We appoint you as the US HOUSING CZAR (10 year term limit). I’m in! Analyze your responses, tweak your plan set your time table and do it. Get it done, go, and achieve results they may be different that what you expect but WOW steps were taken, effort and progress was made. Oh I’m sorry refer to the previous paragraph, that’s what we would be faced with to enact any plan to help the housing market.

I applaud your ideas and I would love for you to create the ground swell of political activism that would enable your plan of action, and if you tell each of us, how all the interested parties in this plan could get that done, then the real plan of action begins. Truly, the longest journey begins with the first step. What would you like for me or (all of us) to do next?

Sincerely,
J Paul Henry,

I can't find anything in your plan that deals with the flood of foreclosed properties on the market. We probably need to find a way to write them off so that their drag on prices will stop, to say nothing of the discouraging influence on consumer sentiment.

Dear Shah,

I agree that housing is the big, undigested lump sitting in the stomach of the anemic recovery.

But my biggest question concerns the heart of your plan: the tax credits.

Who has the money to buy a new home, regardless of credits?

Isn't that a bigger problem than no one knowing where the bottom is? People are either out of a job and/or their current home is under water. They can't find a buyer for THEIR home, except at a huge loss, if then. A vicious circle.

So where do they get the capital to buy, especially as underwriting has tightened up?

You assume a pool of buyers sitting on the sidelines, waiting for the market to bottom out. But one has to wonder if such a large pool of potential buyers exists. Look at the unemployment rates, the real ones.

As to the GSE's: I guess they're about to be done away with. But Fannie has been around since the 1930s or something and never caused any trouble before. Isn't it a bit unfair to blame the housing crisis on her?

Why not just reset every under water mortgage to a level commensurate with current home prices and let the banks take a haircut? Or maybe split the difference between culpable lenders and gullible buyers? Right now, the only ones hurting are the homeowners. Is that fair or just?

My 40 year experience in the Real Estate business tells me this time the market is reacting differently because:

The Government's policy of forgiving "Mortgage Debt Relief" by not taxing the debt relief when borrowers do a "short sale" or walk from ownership (REO) of their home is causing a continual downward spiral of residential Real Estate Values. This is because the borrower no longer has "skin in the game".
Also, the continued interference by our Government Agencies dose nothing but exasperate the situation, just look at their current ideas:

The Federal Government's proposal would toughen debt restrictions on mortgages:

1. Min down payment 20% (currently 3.5%)

The result would be a continual shrinking of number of buyers, removing their ability to purchase a home for at least 16 years.

2. Maximum Debt to Income Limits 28% Housing / 36% of Total Debt (currently 45% of Total Debt)

Again – shrinking even more the number of buyers and totally ignoring the more realistic approach of evaluating a person's "residual income" (i.e. A family that makes $10,000 a month would have $7,200 left to spend if a quarter of their income goes toward the mortgage. By contrast, a family that earns $4,000 a month has less than $2,900 left). This has been used by the Veterns Administration from the start of their "0" down program.

3. Requiring Banks to maintain a stake in every mortgage loan lent (currently 99% sold, retaining servicing payments)

BASEL III which the U.S. Bank's are now following will greatly increase their reserve requirements and dramatically reduce the Mortgage loans Banks will be able to do with this added reserve requirement!!

What "unintended consequences" do you think will happen if the Federal Government implements this plan??

As a Canadian living abroad, I find this discusion entertaining. "There's a sucker born every day" and a greedy sucker is the easiest to con. Your governments (Republican & Democrat) worked at promoting peoples' greed impulses to get votes; then their co-conspirators, the super big banks milked the public for every dime they could steal. But, at the end of the day, if you want to see who is responsable, you need only look in the mirror. Your political system does not encourage politicians to do the right thing, special interest groups and lobbyists control them. No matter how good a plan you propose, they will not act. At every election, vote in someone new; they will soon realize who pays the bills. Maybe you can get action before we all die of old age.

I speak as an observer from Australia.
One feature of the USA housing market which is a major cause of the present prioblems is the non-recourse mortgage. Lenders anywhere else would not lend on those terms. It is a major cause of the exteme volatility of the market. If prices are rising, there is no caution on the part of the borrowers because they hav eall the upside and do nto need to accept any of the downside if the market collapses. They simply default and walk away with all their assets intact.
When prices decline, the painless defaults cause a drop in prices and consequent more defaults any further drops in price. This causes extreme volatility.
I admit that any change to the system will be painful in the short term, but any other measures, without addressing the problems caused by non-recourse mortgages will only provide the platform for future collapses in the market.
One other issue. While USA policemen, and oters, can retire on full pension below fifty years of age, public finances are unsustainable. Unless this is addressed, the USA will continue in relative economic decline.

Don’t save the economy. It’s just more of the same manipulations by the same people that caused the problem in the first place. The economy will save itself after it adjusts for the incompetency and greed. Then people will be more likely to learn from their failures and the future will have a better chance of being brighter. Houses are overpriced and their values should fall. The sooner they fall, the sooner the economy can rebuild. Subsidizing houses only reinforces the greed and irresponsible behavior of bubble makers and further punishes the responsible people who could have but did not buy in the bubble. With your plan they have to buy a house with an inflated value caused by the subsidy, and this is just more bubble making and injustice.
If you plan were implemented, it should be made retroactive to now or people would put off buying until its implementation.

Get the government out of our homes and lives. In the history of mankind, nothing but nothing has run better when government touches it.
The basis of the crises originated with a government minority view that causasions held ~70% of home ownership. To change the ownership percentage to approximate the population demographic, the government encouraged easy money (stupid loans) to be offered to everyone. Dumb government + dumb loans = economy crash.
One solution to help the plight of homes for everyone would be to encourage savings for mandatory 20%+ down payments. This could quickly and easily be done by dismissing taxation on savings. Potential homeowners could actually feel engaged in the great American way. The wealthy would not need to shelter cash off-shore. Banks would have new easy money to loan if Americans were actually saving.

Mr. Gilani,
I applaud your attempts at coming up with a solution. I very often read articles from those complaining about housing and what is wrong with the economy but very few that actually come up with a solution. I am no financial expert so I'm not going to offer an advice on how to tweak your plan. I would, however, like to let you know I have forward a summary of your plan, along with the original article, to my congressman, senators and representatives.

Thank you.

Rick Bettencourt

Any sensible, not politically based or run plan at this point is worth a shot. But there is a problem underneath the housing problem. We literally gave US jobs away and then iced the cake by selling even the equipment we had to manufacture things to overseas companies at bargain basement prices and announced our "export business" was up. And to that stupidity, way too many people have failed to see that technology is advancing at a brisk rate and computers and robotics and artificial intelligence will keep pushing down the number of potentional job opportunities in this nation and ultimately the world. We may have to educate our children not only to do more highly skilled jobs but to most likely work a significantly fewer number of hours a week. That translates into lower and lower standards of living for those in first world nations. And ultimately the third world overworked and often abused folks will also be replaced by one form of automation or another. So while educatiing our children to cope with more science and math and maybe return to the idea of homework and a full length class day, they also need to be prepared to live with more free time but with fewer toys.

Technology is swift and has shortened attention spans accordingly so it's almost impossible today to find even college graduates willing to contemplate reading a 600 page book or taking a ten mile hike. The internal pressure we have inculcated in our young people has been intense and now if they are fortunate enough to get out of college without owing their first five years of pay for student loans, they find there are next to no decent jobs for them. And that problem is only going to get worse.

We are preparing them to live with chronic instability because along with their own generations' problems they are watching their parents and neighbors lose everything they worked in most cases very hard for. They are also being taught that the government has every right to ignore the Constitution at whim and even their bodies are no longer safe from unreasonable searches and seizure. Cameras all over the place and eletronic eavesdropping have taken the sense of private space away from our young people and as a result they for the most part are being led to believe that the government is the ultimate savior of this nation.

Now obviously that isn't true because at some point even those lofty Congressman may just have to join social security and some sort of national health scheme. People are getting fed up with how they manage to exclude themselves from the oppression they are doling out while cliaming to represent us. But our younger folks are accustomed to seeing the corruption and a sloppy approach to living replacing what were once referred to as "working class values."

So to me, I read so many of your good ideas and yet am not hearing anything about the huge shift in social values that is taking place as our current government is trying to level all boats while lowering those of its own citizens under the guise of helping others – most often via war and/or printing money to throw at nations who don't even have bootstraps to pull themselves up by.

Our intellectual plates will not be full and ready to be examined for your good ideas to work unless you folks come to terms with the fact that more and more of those low paying service jobs are going nowhere: they are being automated right here. Look at any Home Depot and see how even the cashier jobs have almost been completely eliminated. Bar code reading and do-it-yourself time is how they expect their customers to do those tasks in their businesses.

And for you to talk about building up the construction industry, I have to laugh. The notion of stick housing that is slowly and expensively built has outlived its usefulness really. Pre-fab anything can be done today and if more modern and stronger building techniques were used, the home building industry as we have known it will disappear as horses dragging carts did when Henry Ford came along.

The human element is what you folks seem to be missing here and unless you want an Orwellian sort of hum drum, close to poverty line living for most Americans, you must wake up and pay attention to what is happening out here to the little folks whose labor isn't needed very much and whose pay checks go down while their property taxes go up in spite of the fact that the value of those homes is slipping almost daily. As Yeats said, "things fall apart [if] the center cannot hold."

The social factors have to be addressed right now and directions and goals must be changed to match up more closely with what the future seems to hold or our boats in the US will just sink as are our homes and dreams right now.

Shah; Thanks for taking the bull by the horns. AT LEAST A FEW PEOPLE ARE WILLING TO ACT AND NOT ALLOW THE U.S. TO GO DOWN THE TUBE !!! I am Canadian but if the U.S. goes down so does Canada. I personally own a home and a rental home in AZ. I took a mortgage as a second home so I have experience with the system. Consumer spending accounts for 70% of the econmy and spending will not continue or improve unless housing is fixed. I have ideas for the other 30% of the problem but will limit my effort to fixing 70% at this time. 1. Banks must be nationally regulated. This does not mean more regulation but workable regulation.Maybe throw away existing red tape and start over. 2.Do away with the 80% FDIC mortgage loss provision. This will give incetive for mortgage holders to refinance or modify rather than foreclose i n a deeply depresed market and further depress the market. 3. For the free market to function we need at least 3 to 5% more buyers than sellers. Other replys have suggested ways to accomplish this. We have choices and need more dialogue as to the most practical choices. 4.Leverage got us into the world financial meltdown but leverage used positively can get us out of the housing crisis. One government dollar should return one hundred or more dollars to home owners. It can be done. The U.S. is far and away the largest econmy and greatest country in the world. Lets make sure it stays that way. Ted

High gas prices started the first collapse , people did not have the money for payments on all those creative mortgage created by all those greed wall street banker and all those big box builders. and those same factors are causing the second dip.
Builder ,developer for over 50 years

Judging by all of the comments, I'd say 99% of people have no real clue what is wrong or what to do to fix it. While Shah proposes a solution or two for the moral hazards that brought about the crisis, he too is also naive about actual resolution. This is not an encouraging sign for expecting a resolution anytime soon at the federal level (**** floats to the top).

The #1 root problem right now is zombie banks. Exactly like Japan. The Fed is pushing on a string. Unless we want to spend the next 20+ years in a deflationary-prone economy, they have to be dealt with for any mortgage lending to resume. This requires all of the toxic garbage to be taken off the banks' balance sheets. Not marking-to-the-market the toxic garbage doesn't fool anyone other than naive stock or bond investors. The government has resolved a similar problem before via the Resolution Trust Corporation in the late 80's.

The #2 root problem is the need to preserve the credit rating, borrowing and selling ability of homeowners currently underwater and to prevent realized banks' balance sheet destruction (again, this is why banks have suspended marking-to-market their toxic garbage). This too is a simple solution by attaching a lien of the difference between the current value and the mortgage amount oweing to the taxpaying homeowner. The lien can be paid out of future home price apprecation or paid off as a loan.

In summary, these two simple solutions are a market-oriented solution to the real underlying problems without requiring anyone to suffer losses or requiring subsidies, bailouts or tax credits. Tax credits in particular are laughable and will not restore sustainable demand, restore bank's lending abilities or buyer's credit ratings. Stimulation is not needed, only coordination.

The main problems are not the market, greed, corruption, politicians, Debt, supply and demand for these are just symptoms of the real problem which is Systemic inequality. Which the monetary system, control of the money supply, fiddling with banking regulation by politicians as a result of corporate lobbying as well as small buisness rules and regulations are the main tools of those that manipulate this system. We have a system where everyone is a seller & a consumer and it was fine until our industry became so autonomous. Now that so many things can be produced by so few laborors we have developed a problem with consumers with no means to purchuse because all of the wealth has been absorbed by the few producers that have worked so hard to strip manpower from production. Whether its outsourced to other countries where labor is cheaper, made by machines, calculated by computer programs or just eliminated by a lack of consumption makes no difference cause the end result is the same.
that end result is a drop in demand & Demand will continue to plummet as long as we continue on this path which poverty will become the norm of. The longer this goes on the more centralized the power with corporatism, political leaders and the energy world striding hand in hand until the people wise up and realize their no longer willing to stand by and watch their children starve. Our system has allways been a ponzi scheme where few at the top of the pyramid enjoy the profits of the masses but with more centalized power and
a lack of any empathy for fellow human beings we now have a country where 10 years ago the top .1% owned 2.7% of the wealth and today they own 12.7% of the wealth. We have
a prison system out of control with crime on the rise and politicians that are looking to cut
any entitelments. we are constantly at war we have one of the worst healthcare systems
and schools are not equiping our children nevermind rising tuition costs and the media seems to only focus on the irrelevant wedge issues that divide people. If you people
can't realize that all of these horrable symptoms are in place only for control and our only way out of this is to unite and demand a move away from monetary slavery. There is no real reason why we all should not have time for our families, shelter, food, warmth and all the necessities that should be provided for each and every person not just in the US but throughout the whole world. Every one of us should have a job. Are we really so greedy
that we think were better than any other? If you really believe this false ideal created by
capitalist dogma,Then you should do it for yourself and not expect someone to slave over you! We need to live not beyond our means to and that is what a budget is for. this is called
a resource based economy and has no money, no ownership in the individual sense, ownership is owned by all and when there are improvements we all prosper from them.
Most people believe there is an issue with incentive but i don't believe that when someone plays sports there is no incentive to win other then the feeling you get and working for the whole would be the same. People would not have to do jobs that they did not want to, right now people will chose a job by how much benifits it gives them in RBE we will chose by how
happy it makes us. We live in a world ruled by stress, compitition, greed, selfishness and i believe if we don't expedite change ASAP we will destroy each other through madness and insanity. Einstein once said "Insanity is doing the same thing over and over again but expecting different results." What do you expect of men? for we should only expect what we ourselves are willing to provide and if thats not you god help your soul !

May I add another idea for the improvement of the housing market? (1) How about the idea of shared appreciation as a consideration for a mortgage and also (2) how about a restriction as to the size of the homes built or financed based upon the number in the family, whether or not there are any physically challenged individuals in the family that will actually live there, and whether the home is Energy-Star or otherwise energy efficient? We really do not need to be building any more "McMansions" but rather more modest and energy efficient residential properties, up and including duplexes.

I mention one other feature really needed but not yet being fundamentally utilized in the American housing market: The use of the SIP-home (Structurally-Insullated Panels, built of orchestrated strand board laminated onto polystyrene foam insulation). If you look up the concept about SIPs, be sure to see the details about using SIPs not only for exterior walls but also "safe rooms", roofs, floors, interior walls (for strength and soundproofing), etc.

At least food for thought, is it not?

Repectfully submitted,

Thomas Avery Blair, EA

Has Mr. Gilani discussed his plan for the rescue with any influential senators or congressmen? If he would get in touch with the likes of Jim DeMint of SC and other influential legislators to explain his proposition he might get a sympathetic ear.

Who's going to buy a house when they're living on the edge of unemployment constantly? If you want to turn around the housing market, you have to wipe the slate clean. I think the govt. should force the banks to foreclose and get out the dead weight, there are too many houses so the the price is going to have to drop. Auction them off, buyers will fix them up and rent them out, creating jobs–just don't let this become a stimulus program for illegal alien construction workers. Trusting the corrupt govt., banks and rating agencies to properly run this and securitize it is just asking for more waste of taxpayer money and more lining of the politician's and bankers pocket. I do agree with disbanding Freddie and Fannie, and while we are at it lets start an investigation on Barney Frank and friends.

we need to go back to making things here at home in the usa and help create new manufacturing jobs, like the old days. We were a country that work.

I write this simple, and. easy to understand. no longer are we the USA we have become the usa.