phi (totient) wrote,

the bill we really need

Wall street has a mess on its hands. Cleaning it up is going to be tough; someone is going to be stuck with a big bill. But finance is not a zero-sum game and we should not be treating it as such. We need to look at where money is still leaking out of the system and plug the holes.

The first place to look is the lawyers. Whenever there's money bleeding out of a system you can be sure lawyers are benefiting. In this case it's about the record number of foreclosures, which are very expensive for the banks. We need a "safe harbor" law to let people walk away from underwater properties. No bankruptcy, no lawyers, just a law that says if a homeowner wants to be rid of a property he can fill out a standard form, sign on the dotted line, and walk away. This could be a government homebuying program, or a requirement on the primary lender, or something else, it doesn't matter, as long as the lawyers get cut out of the feeding frenzy.

The next place to look is vacant properties. How inefficient it is to have houses go vacant and therefore unmaintained? These are also a health risk (mostly from mosquitos breeding in the pools) and drive down nearby property values. Banks don't have the resources to show properties and mandating that they somehow grow this ability is foolishness... but there are such things as real estate agents, and there is an obvious tenant in the form of the previous owner. Setting a rental price might be tricky, but it's a lot easier than setting a fair market price for bundled mortgage securities. Even if the owner doesn't wind up there, better to rent it at section-8 prices than let hundreds of thousands of dollars worth of house burn up because no one was there to hear the smoke alarm go off.

Finally, whatever you feel about the economic justice of people who bought houses beyond their means, a side-effect of the foreclosure boom is that a lot of renters are getting evicted when their landlords are foreclosed upon. This is crazily inefficient, and it should be stopped.
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