-By The Mysterious Flying Miser

It wasn’t long ago that most Thought Leaders were publicly denying the existence of a housing bubble, perhaps even unkindly. Now past the denial phase, many have skipped the mea culpa and jumped directly into bargaining phase. Below is a list of delightful ideas being seriously considered by People Who Know. Can you tell which thing is not like the others?

www.ritholtz.com/blog/2009/03/solving-the-housing-crisis/

by John Mauldin:

“Long-time readers know that I have been growing more and more bearish of late. I have been writing for a long time that we are in for a long period of slow muddle-through growth as the twin crises of the housing bubble and credit bubbles require time to heal. Today, we look at a serious proposal for cutting the time to healing for at least one of those bubbles (housing), and at least keep the other (credit) from getting worse. This is the most serious idea I have seen that could actually make a realpositive (sic) contribution to the economy and help put us back on a growth path.

“(Recently), the Wall Street Journal published an op-ed by my friend Gary Shilling and Richard LeFrak. They offer a simple solution for the housing crisis: give foreigners who will come to the US and buy a home resident status (green cards). … The links to the (PDF) white papers are:

href=http://www.frontlinethoughts.com/pdf/Housing_Whitepaper_2.pdf>

www.rgemonitor.com/financemarkets-monitor/255760/the_housing_crisis_and_bankruptcy_reform_the_prepackaged_chapter_13_approach

“In (our) paper, we propose a plan that will help reduce the costs from foreclosure by, in effect, giving the homeowner the option to force a renegotiation on the owner or owners of the loan. This option takes the form of what we call a prepackaged Chapter 13 bankruptcy, in which the mortgage is automatically readjusted in line with the decline of housing prices in the homeowner’s ZIP code. The homeowner ends up with positive equity in his house, so that he will either maintain the house or sell it outside foreclosure, and the creditor ends up with a claim of greater value than the foreclosure price of the house. Because both parties are made better off, the cost of credit should not increase in the long run, and taxpayers do not have to subsidize the scheme. The plan is premised on the assumption that widespread negative equity mortgages, as a consequence of the popping of the housing bubble, are the chief cause of the crisis, rather than loss of income caused by the recession, which the plan does not address.”

http://www.reuters.com/article/pressRelease/idUS138046+08-Dec-2008+BW20081208Reuters

“… Noted economist Dr. Mark Dotzour says bold government action can get the market back on track. In his new white paper, the chief economist for the Real Estate Center at Texas A&M University offers a … solution to fixing the housing crisis, one that involves more than simply devising ways to keep people in their homes."

“‘We need to lower the depreciation schedule for investors who buy troubled houses to around five to seven years,’ he said. ‘And if we really want to solve the problem quickly, offer these investors 0 percent capital gains tax if they hold the properties for more than five years.’

“Dotzour’s (PDF) white paper is available online at:

http://recenter.tamu.edu/pdf/1884.pdf

From “How America Can Escape the New Great Depression” by Michael A.Kamperman:

“The government simply needs to crank up the printing press and buy every U.S. Treasury bond it can get its hands on. This idea flies in the face of conventional wisdom and will have many detractors. Most of these detractors didn’t see the problems we face today coming. Most of these detractors have told us we could not return to a 1930s-style depression. Most of these detractors told us that the rest of the world had decoupled from the U.S. economically and that the global economy would grow even if the U.S. went into recession. This solution is outside of the box of conventional wisdom, and some consider it impossible. We need to listen to new voices and new ideas because the old voices restating the same old ideas have not been able to put the Humpty Dumpty credit markets back together again.”

From The Atlantic, by Felix Salmon:

"Amazingly, (the housing mess can be solved) with just one policy: a decree that whenever a bank forecloses on a home, the current occupant has the right to remain in the property indefinitely, simply by paying the fair-market rent. Banks are killing each other by racing to sell their foreclosed houses as quickly as possible, before they fall further in value; this policy would force a cease-fire that would help all of them. It would also put an end to the equally destructive syndrome of soon-to-be-foreclosed-upon homeowners trashing their houses before they’re kicked out. This plan might not single-handedly end the recession. But it would certainly help."

From Weiss Research:

"With the goal of avoiding quick fixes and fostering a healthy, long-term recovery, Weiss Research offers the following proposals to federal regulators and legislators:

1. Closer monitoring and prompter action by the Federal Reserve to help avert run-away asset price inflation.
2. Better enforcement of existing predatory lending statutes.
3. Better protection of borrowers through a model akin to one recently established between the Office of Thrift Supervision (OTS) and three subsidiaries of American International Group.
4. Greater focus by regulators on banks and thrifts whose mortgage performance measures are showing the most stress.
5. Suitability requirements for the mortgage lending industry.
6. Rather than a ban on specific lending practices, limiting them to the uniquely qualified borrowers for which they were originally designed.
7. Federal training, education, licensing, and testing standards for mortgage lenders.
8. Assignee liability for secondary market buyers of home loans.
9. More focus on developing programs that promote saving for a down payment."

Michael Larson concludes: “These solutions cannot be painless. But in order to pave the way for a sounder future, many of the sacrifices that were avoided in the past may have to be made in the present.”

And then there is this from our resident blogger. "What most people see as the problem, I see as the solution. What's going to to help Las Vegas and Arizona...the reason that it grew for years (was) that there was cheap land. You could get a house for $100,000. When we get back to that, Arizona will heal."

"The biggest challenge we face is...we have to get back to an economy based on something other than buying and sellling each other houses...and taking out loans and spending them on cars and vacations."