What About the Rental Option?

All the plans we’ve heard to date for solving the housing portion of the financial crisis are focused on keeping people in their homes by reducing the costs of mortgages until even the unemployed can afford one. That’s the kind of populist thinking that got us into this mess in the first place.

Let’s be honest: Not everyone should be a homeowner. Regardless of whom you want to blame for how we got here, some of us are facing mortgage payments we’ll never be able to make even under renegotiated terms and reduced interest rates. Even in what Conservatives call an Ownership Society, those without the cash flow necessary to build equity are better off as tenants rather than be burdened with the debt of ownership.

Instead of the government purchasing bad loans, as Senator McCain once suggested, or buying up the loan derivatives, as the Paulson plan originally intended, or just handing money to financial institutions for them to use for “whatever,” let’s create a program similar to the depression-era Reconstruction Finance Corporation (RFC) to federally fund state and local governments to acquire the underlying properties of defaulted loans at a steep discount and then turn around and rent those homes to the current occupants. Besides, it looks as though it’s going to be impossible to refinance any of the securitized loans. They’ve been bundled, chopped into traunches, then bundled again and there’s no way to figure out who holds which mortgages. (I’ll bet that’s something that won’t be permitted once the dust settles from all of this.) Regardless of who they are, the mortgage holders (lenders, insurers and hedge funds) will feel some of the pain for their indiscretions, but it will stabilize and put a stop to their losses, allowing the credit markets to finally move forward.

People who stand to lose their homes and who would otherwise be out on the street become renters, which of course they should have been all along. This eliminates the problem of those homeowners who continue to pay their mortgages feeling like their neighbors are receiving an unfair bailout. And setting a value on the real estate is far simpler than trying to find the fair price to pay for credit-default swaps on securitized loans. The federal government would set standards for the program and provide oversight.

With an average pre-slump U.S. 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. Why fund state and local governments? Because the closer you get to the properties, the better a landlord you can be. Yes, as landlords the cities and states will have to manage and maintain these homes, but that’s much easier at the local level than from Washington. We can learn a lot from both the strengths and weaknesses of the RFC, created in 1932 and rolled into Treasury in 1953.

To make sure our governments don’t stay in the real-estate business for the long term, after a two-year cooling-off period, the homes would first be offered for sale to the then-current occupants, then auctioned randomly over a five-year period to avoid further depressing the market with a sudden glut of even more homes for sale.

We won’t solve the housing crisis so long as we pretend that families who can barely make ends meet can afford the increased burden of building equity. It’s those “affordable” but unrealistic zero-down principal-only loans are what got us into this situation. So long as we pretend that we can make home ownership inexpensive enough for everyone, we’ll never dig our way out of this hole. Allowing people to rent the homes they currently occupy not only keeps roofs over their heads, it’s also simple (as compared to other options) and solves our housing-crisis problems directly. It removes the bad-loan problem from the books of financial instututions without rewarding them for their misconduct.

(Seven weeks ago I blogged a draft of this idea, which I followed up with an op-ed submission to the NY Times. Of course, lacking a Nobel Prize, I wasn’t likely to be successful, but I had to try, right? The above is an updated version of the article I submitted to The Times.)

The First Bit of Magic

I think I just added the first piece of magic to SpokenWord.org. If you click on the Recently Collected tab, you’ll see a list of the programs most-recently added by members to their collections. But click on the numbers under the images and you’ll see *which* collections those are. Why is this magical? Because that’s the way you’ll find “more like this” — other programs explicitly collected by other members. There’s a lot more of this to come, but this is the first step.

Homepage Experiment

Spending an hour on a Skype call with Bruce Sharpe last night gave me some good ideas about the SpokenWord.org homepage. We looked at a few sites together, and with Bruce’s encouragement I decided that SoundFlavor has a lot of good ideas on their homepage. So in the past 24 hours I’ve completely re-done the SpokenWord.org homepage, lifting many ideas from SoundFlavor and other sites. Yeah, the colors are still awful and I can’t design (or use Photoshop) worth a damn, but I think it’s a whole lot better for first-time visitors without sacrificing usability for our experts.

Boogie Man Tonight on PBS

PBS’s Frontiline is showing Boogie Man: The Lee Atwater Story tonight The film was shown at both the Democratic and Republican conventions, and both audiences liked it. I guess we all see what we want to see. I had the pleasure of screening this extremely well-done documentary at the Mill Valley Film Festival, and I highly recommend it. You’ll learn a lot about how the U.S. political scene has changed in recent decades.

SpokenWord.org Alpha 0.4

A week ago, I blogged about a conceptual breakthrough in the design of SpokenWord.org. In a nutshell, I realized the site would ultimately be built on the relationships of people: one member recommending programs to others, and members following others and their recommendations. The concept survived Doug’s 48-Hour Rule for Conceptual Breakthroughs, and I’ve spent the past five days coding and debugging the first component, which turned out to be collections. Formerly known on the site as Playlists, Collections are just that: collections of programs, RSS feeds and now even other collections that any member can create, curate and share. Yes, allowing collections to include collections without all Hell breaking loose was tricky. Details are in the FAQ.

I’m currently struggling with a few more issues. First is that the site has four classes of “objects” and it’s currently difficult to (visually) tell which is which. We’ve got members, programs, feeds and collections, and they all look pretty much the same. The question is, therefore, how to change their visual representation so visitors can tell which they’re looking at. Seems pretty basic, but I’m visually challenged and I’m too close to the code.

Another big issue is how and what to feature, in particularly on the home page. Experts (and our advisors) tell us that you should be able to play programs immediately from the home page. (That’s not quite the case, yet.) But we also want to encourage the social activities: collecting, recommending, sharing and following. How can we strike the balance between just providing access to the programs and at the same time get people to interact with one another? Like I say, that’s what I’m scratching my head about tonight.

So please come by and check out Alpha 0.4. The new features are still a little rough around the edges, particularly some Ajax issues on IE6 and IE7. But you should be able to register, login, create collections and add programs, feeds or other collections to your collections. You can find great programs by browsing, searching — Advanced Search is in good shape — or just clicking on tags. You can send me feedback, leave a comment here, or (if you’re interested in our planning process) join the strategy discussion and post your ideas there.

The Best Election Coverage You’ve Never Heard

Like many, I’ve become a cable-new junkie. I spend far too much time flipping back-and-forth between CNN and MSNBC looking for the least-objectionable coverage of the same old stuff, over and over again. But for a refreshingly different perspective, for unique stories that you probably won’t find anywhere else, I’ve been listening to ’08 Conversations. Today’s show is a great example:

How are young adults dealing with the issues of elections and government? Are they more or less likely to vote? As a part of the first post-September 11th generation, their opinions and actions are thought-provoking. Amina Al-Sadi, a college freshman, is featured in an excerpt from a public radio special produced by and for teenagers.

PRX’s Charles Lane has spent the past five months finding these terrific programs from independent radio producers, working with our own series producer, Joel Tscherne, to bring you a new show every Monday. Visit ’08 Conversations. I’m sure you’ll find something inspiring, different and a cut above the TV noise.