Yesterday I wrote about something within my professional expertise - parenting - as it relates to Sarah Palin. Loyal's First Diary: Sarah Palin as Parent I am a pediatrician after all.
Today I want to step into an area - economics - that I know only a little about. But unlike those economists with no medical training who have helped to re-design health care into ruin through messed up incentives, misunderstood value, and utter disregard for what is actually good for patients, I have a touch of economics training, so I feel safe giving this a try.
The Feds should be buying houses. I credit Paul Krugman Krugman on De with stimulating this idea.
Here's what I'm thinking. If Krugman is correct and the fundamental problem is declining assets,
That’s what’s happening now, with debt deflation made especially ugly by the fact that key financial players are highly leveraged — their assets were mainly bought with borrowed money. As Paul McCulley of Pimco, the bond investor, put it in a recent essay titled "The Paradox of Deleveraging," lately just about every financial institution has been trying to reduce its leverage — but the plunge in asset values has nonetheless left these institutions with more debt relative to their assets than before.
then the problem is not the lack of liquidity in the lending market, it is the lack of liquidity in the housing market.
Think about it. If the federal reserve buys dollars to revive a sagging dollar, why shouldn't the federal government direct Freddie and Fannie to buy housing stock to add liquididty to the housing market. Set strict standards for how to price relative to past and current markets and let people sell at mild losses rather than have constantly declining markets.
This also will create jobs, as the lenders have to establish an infrastructure to let them serve as landlords. will generate income now as rent, and capital later, when markets appreciate and the properties can be released to teh market (slowly), and can provide moderate income housing even in pricy areas. It is a win, win, win. Allow tenants to have first dibs and favorable terms to purchase and for some it becomes a rent to own opportunity. Maybe a proportion of the rent can be used as a down payment.
There are plenty of opportunities to develop this idea and the specifics, but it occurred to me that this could be just the solution that the doctor ordered.
And with all the money we are wasting in Iraq and elsewhere, it can't be about affordability, it has to be about priorities. So why not do it.
And if there are good fundamental reasons that this is really a bad idea, what the hell. Do it anyway. After all, if it's ok for the economists to screw up the practice of medicine, then surely it can't be that bad for a doctor to screw up the economy... can it???
Peace,
Loyal