How To End The Recession In A Week

[Conan71]

Interesting take by real estate investor John Adams:

At the risk of offending my good friend Don Ratajczak, I am going to put on my economist hat and offer to solve our economic problems in a seven-day period. News from the housing front is simply depressing and the recovery, such as it was, seems stalled.

Washington obviously needs new ideas, so here goes:

All agree that the real estate industry represents a huge sector of the economy, and when somebody buys a new house it employs hundreds of people all over the U.S. However, people who are worried don't buy houses, and a large segment of the workforce is either unemployed or worried.

Real estate led us into this recession and it will have to be real estate that leads us out. That's the way it has worked for the past seven recessions in a row, so what do we need to do?

On Monday, declare a national moratorium on all residential foreclosures unless the lender has engaged in meaningful attempts at modification and has employed every reasonable strategy to keep the borrower in the house. Also, grant "safe harbor" status to servicers who grant modifications in good faith. That step alone will keep millions in their homes.

On Tuesday, modify the Garn-St. Germain Act to invalidate "due on sale" clauses used by federally chartered lenders to prevent buyers from taking over payments. This would allow thousands of owners to sell to buyers who are able to make the payments, but unable to meet new and more stringent underwriting criteria. Lenders should still be able to require reasonable credit and income standards, but assumption should be quick and easy, and at no cost.

(Making it easier to "assume" loans could make a huge difference- Conan's comment)

On Wednesday, change the tax code to encourage real estate investors. Eliminate all income taxes on profits derived on the sale of any home purchased as a bank-owned foreclosure, then renovated and resold within 12 months to an owner-occupant.
This would cause bank-owned homes to become much more attractive to private investors, who would rush to buy them as soon as they became available. They would then renovate them with private money rather than looking for a government handout. And it would help stabilize neighborhoods by eliminating vacant houses and substituting owner-occupants.

On Thursday, declare a six-month "federal tax holiday" and simply stand back and watch the economy move into high gear. It is a fact that tax cuts create jobs, and that's what the real estate market needs more than anything else.

On Friday, take the day off, but notice that the stock market has recovered and every home in America has jumped in value by 10 percent. Everyone will feel more confident, unemployment will decline and the recession will officially be over.

Please share your thoughts with me at money99.com.

John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA-AM (920) every Saturday at noon.

For more real estate information or to make a comment, visit www.money99.com.

http://www.ajchomefinder.com/mortgage-center/how-to-end-the-574574.html

[Gaspar]

Won't work.

[rwarn17588]

Won't work.

Why not? I think most of the ideas are good ones.

[Gaspar]

It makes sense and relies on the private market.  There is no way in Hell that this administration would ever take this approach.

Therefore it would never work.


And besides. . .Waterboy would complain because it's too simple.

[nathanm]

First off, the recession is actually over. Unfortunately, lagging indicators like unemployment are still in the dump. Part of this is likely due to the fed's unwillingness to act on the deflation issue, which causes higher structural unemployment.

I don't quite understand why modifications will suddenly take off when there are already big cash incentives for lenders to make modifications. Note we already had a foreclosure holiday, also.

Tuesday's plan will never fly with Republicans as a whole. Remember that these are the people who blame the crisis on poor people getting loans they couldn't afford, yet this guy wants lenders to relax underwriting standards. Never mind that the vast majority of foreclosures are on second homes and jumbo loans. I need to relocate the source for that, it was pretty shocking. Turns out, the higher the borrower's income, the more likely they are to walk away.

This guy just doesn't get it. The problem isn't real estate, the problem is the well over trillion dollars sitting in corporate reserves that isn't getting spent due to expectations of deflation. This is what is keeping unemployment high despite the slight increase in GDP over the last year.

Lastly, there are already plenty of investors buying, at least here in my neighborhood. I've seen four houses flipped in the last few months.

[Gaspar]

First off, the recession is actually over.

I know Mr. Biden.  You've been telling us that for some time.

Those stupid indicators.  We should ignore them. 
Just listen to us. . .You can trust us.

[guido911]

Not sure this belongs here, but this  is a very informative clip about how to tackle the deficit. Paul Ryan is no "crazy" right winger. He very intelligent and well spoken (oh, and Chris Matthews getting taken to the woodshed is a bonus):

[Gaspar]

I got a better idea. 

Joe Biden should just tell the unemployed that they are actually employed.  They should just consider their unemployment checks as "employment checks." 

Or as Nana would have us believe "Weekly Economic Stimulus Checks."

[Conan71]

I know Mr. Biden.  You've been telling us that for some time.

Those stupid indicators.  We should ignore them. 
Just listen to us. . .You can trust us.

Phil Hartman left us way too soon, he could have pulled off a great send up of VP Biden.

[Gaspar]

Not sure this belongs here, but this  is a very informative clip about how to tackle the deficit. Paul Ryan is no "crazy" right winger. He very intelligent and well spoken (oh, and Chris Matthews getting taken to the woodshed is a bonus):

Glad you posted that.  Ryan is brilliant.  I skimmed his plan and it's all common sense.  The CBO has actually scored it as paying off the deficit, and it has elements that everyone (regardless of party) should admire.  The thing I like the best is that it's not written as a political piece. 

I admire Ryan because he is not the political type.  He always seems to have a far deeper understanding of anything that he is asked about than his interviewer or his debate opponent.  He actually knows what he's talking about rather than regurgitating talking points.

http://www.roadmap.republicans.budget.house.gov/plan/summary.htm

Download the PDF for the full plan.

[nathanm]

I know Mr. Biden.  You've been telling us that for some time.

These words you use. They have definitions.

I would not, by any means, argue that the economy is strong. But we are simply not presently in a recession, which is defined as two or more consecutive quarters of negative economic growth. Once growth resumes, a recession, by definition, is over.

Edited to add: At least Ryan didn't try to claim that tax cuts increase revenue. Does anybody have a link to the cuts he wants to make? If he's using the usual 10 year horizon for his claims about how much his cuts will save, it's not nearly enough to close the gap. Taxes will have to go up at some point, like it or not.

[Conan71]

First off, the recession is actually over. Unfortunately, lagging indicators like unemployment are still in the dump. Part of this is likely due to the fed's unwillingness to act on the deflation issue, which causes higher structural unemployment.

I don't quite understand why modifications will suddenly take off when there are already big cash incentives for lenders to make modifications. Note we already had a foreclosure holiday, also.

Tuesday's plan will never fly with Republicans as a whole. Remember that these are the people who blame the crisis on poor people getting loans they couldn't afford, yet this guy wants lenders to relax underwriting standards. Never mind that the vast majority of foreclosures are on second homes and jumbo loans. I need to relocate the source for that, it was pretty shocking. Turns out, the higher the borrower's income, the more likely they are to walk away.

This guy just doesn't get it. The problem isn't real estate, the problem is the well over trillion dollars sitting in corporate reserves that isn't getting spent due to expectations of deflation. This is what is keeping unemployment high despite the slight increase in GDP over the last year.

Lastly, there are already plenty of investors buying, at least here in my neighborhood. I've seen four houses flipped in the last few months.

What Adams was proposing wasn't lax lending laws, he makes the caveat that assumptions should be made easier but only if people can provide reasonible income and credit standards.  That's sound logic.  There's plenty of people who have the monthly cash flow to afford the payment who simply don't have the cash required for down payment, closing costs etc.  Those people are caught in eternal rent Hell.

[Conan71]

These words you use. They have definitions.

I would not, by any means, argue that the economy is strong. But we are simply not presently in a recession, which is defined as two or more consecutive quarters of negative economic growth. Once growth resumes, a recession, by definition, is over.

And we know that.  What you are ignoring though is that if unemployment doesn't start to shrink soon, we will see more negative economic growth.  For all we know, government consumption might be what is driving the engine right now. 

[Gaspar]

These words you use. They have definitions.

I would not, by any means, argue that the economy is strong. But we are simply not presently in a recession, which is defined as two or more consecutive quarters of negative economic growth. Once growth resumes, a recession, by definition, is over.

Yes, that's the Shiskin definition.  There are several others that make up a "macro definition" of the concept.

A 1.5% increase in unemployment over 12 months.
Check


A sustained but short term decline in the size of the economy.
Check

The most popular def:
The National Bureau of Economic Research calls it "a significant decline in [the] economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales." (Almost universally, academics, economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end.)
Check

Congratulations, I see that you and Biden have already made the choice that best fits your purposes.

[nathanm]

And we know that.  What you are ignoring though is that if unemployment doesn't start to shrink soon, we will see more negative economic growth.  For all we know, government consumption might be what is driving the engine right now. 

Gaspar apparently didn't know that.  

Yes, unemployment is a significant issue. It's most likely being caused by deflation. For full employment, we need 3-5% inflation. That's just the way it works. There are three ways to stave that off at this point. Action by the fed, fiscal stimulus by the government, or increasing business spending. IIRC, you have declared that you are against both of the first two.

Personally, I think the gap we're facing is too big to be borne by any one of those alone. Moreover, we're in a bit of a catch-22. Businesses are loathe to spend because of a lack of demand driven by expectations of deflation. The deflation is caused both by expectation and the presently lower velocity of money resulting from the cash hoarding going on by just about everybody. Some combination of stimulation of business demand, fiscal stimulus from the government, and QE from the Fed will be necessary to prevent 10% unemployment from becoming the new normal as it already is in many other countries around the world.

Gaspar, I cited the NBER's definition. They are the authoritative source on whether or not we are in a recession. They say we exited the recession earlier this year.