My Bail-Out Plan

I’m no economist, and I won’t be surprised if this idea is fundamentally unsound, but here it is. We need to get these bad loans off the books of our financial institutions in order to open up credit markets. But rather than buying the loans (which are so hard to value), why don’t we acquire the underlying properties of defaulted loans then rent them to the current occupants? We can buy them at a steep discount. I don’t know, maybe the government pays 75% of the current value or (to make it easy) 50% of any appraisal prior to April 1, 2008. The mortgage holders lose money, but that should happen anyway.

  • People who stand to lose their homes and otherwise be out on the street become renters, which they probably should have been all along.
  • We eliminate the problem in which homeowners who continued to pay their mortgages don’t feel like their neighbors who couldn’t pay their mortgages received an unfair bailout.
  • We don’t have to value the derivative securities, which is very hard.
  • The mortgage holders and those with credit default swaps (CDS’s) share in the downside, paying some of the cost for their recklessness.
  • We have the potential upside due to the discounting.
  • The government auctions the acquired properties, spread out over a 5- to 10-year period (selecting the properties randomly) to avoid depressing the real estate market further due to a flood of properties.
  • Ultimately we make a profit. Our dollars are going into tangible real estate, not some abstract financial instrument.
  • We may want to do this through state and local governments rather then federally. The more local we make it, the easier it will be to manage and maintain the properties. The federal roles are (a) to provide funds, (b) to set standards, and (c) to audit the process.

At an average home price of $215,000 and a 25% discount, $700 billion allows us to acquire nearly four million homes, even including a 10% cost to administer the program. If we need to acquire more than four million homes — something we should be able to determine easily — we reduce the amount we pay to the current mortgage holders. If it’s less than four million homes, it costs us less than the $700 billion in the Paulson plan.

Like I say, it’s an amateur idea and probably flawed, but I like the facts that (a) it’s simple, (b) over time, the government gets out of this (as homes are sold), so it doesn’t create a permanent beauracracy, (c) no one gets rich, and (d) no one loses the roof over their head.

Tell me why this won’t work.

Update: Still waiting for an expert to point out the flaws, but I’m getting a lot of supportive email. If you like the idea, email your senators and congressperson with a link to this page. I’ve sent it to Boxer, Feinstein and Rep. Woolsey. If you have a Senator on the Banking Committee or a rep on the House Financial Services Committee, even better.

Stack Overflow is Awesome

If you’re a softwared developer, you’ve got to join Jeff and Joel’s Stack Overflow. Here’s just an example why. I was struggling with a complicated SQL query, so I posted a question on the site. I went into the kitchen to make and drink a cup of coffee. When I came back, I already had a half-dozen answers. After selecting the best response and a few comment/exchanges with its author, I had a superb solution. It’s an amazing resource, and because the site managed to launch (beta) with an amazing number of active members, it already has critical mass. There is nothing quite like it on the web. I wonder now if it could work for disciplines other than software development.

Stack Overflow Launches

Developer’s developers Jeff Atwood and Joel Spolsky have launched the public beta of their new site, Stack Overflow. Looks like a terrific site and community where developers pitch in to help one another. We’re particularly proud of Stack Overflow here at The Conversations Network because we’ve been publishing the weekly Stack Overflow podcast for the past three months in which Jeff and Joel continue to discuss (among many other things) the process of building and launching their site. Here’s tonight’s episode (#22), featuring the launch.

Special thanks to and Component Factory for stepping up to underwrite our costs of producing Stack Overflow and The Conversations Network. Check ’em out!

If the press will just do their job…

I copied the title of this post from a great post by Dave Winer, who has been doing an excellent job of blogging the U.S. presidential campaign. I’ve also been thinking about how extremely poorly the press (most notably the cable-TV channels) have been doing their jobs. Their coverage of the “lipstick on a pig” exchange was bad enough, but this new one (“Obama sponsored a bill to teach sex to kindergartners”) is outrageous.

The press I know best are the tech publications. The very worst among them do nothing more than reprint press releases as-is. No editing. No research. No contrast or comparison. No analysis. In short, no journalism whatsoever. And that’s what CNN/MSNBC/FOX have become, at best. As my wife pointed out, they’re all so afraid of not being first with a story and desperate for ratings, they’ll report anything. There’s absolutely no sense that they’ll deny anyone access to their platforms for any reason. Any candidate’s “spokesperson” can say whatever they want, and it gets aired. The more outrageous the better. Accusations have themselves become the “news.” Rather than reporting real news or writing (heaven forbid) analysis or criticism, they take the press releases as being newsworthy in and to themselves.

Remember the pre-Craigslist classified section of the newspaper? Even that showed more editorial discretion. These channels are now nothing more than outlets for whomever can yell the loudest or make the most outrageous claim. Hey…the anchors even spend hours commenting upon the fact that they shouldn’t be covering this stuff. How hypocritical is that?

Even shows like Meet the Press often feature political operatives rather than analysts. Why would I want to listen to someone who’s job is to make one candidate or another look good? Give me some more-independent thinking like News Hour’s Mark Shields and David Brooks.

As Dave writes, this must stop now. I’m turning off the television.