Is there a new Great Depression on the way? There is no consensus on what might turn a normal recession into a full-scale depression, but growing debts and falling prizes seem to be among the major candidates. In Europe the situation isn’t a severe yet, but falling house prizes and negative equity is a growing problem here as well.
I know rather little about economics, but it seems to me that the best thing would be to let people stay in their former homes. Foreclosure means empty houses that are neglected and vandalized, something that no one benefits from. It also means homelessness, and falling prizes as all the foreclosed houses flood the market.
If the banks, or whoever owns these houses, instead would let people stay on as keepers, the houses wouldn’t be rendered worthless by copperthiefs and vandals. That way the prizes wouldn’t slump further, and they could sell the houses later when the economy has regained its momentum. And those now facing homelessness would get a little time to sort out their finances.
Isn’t that a win-win solution?
Filed under: Economy, Politics, Society | 2 Comments
Tags: depression, foreclosure, homelessness, subprime crisis
“If the banks, or whoever owns these houses, instead would let people stay on as keepers, the houses wouldn’t be rendered worthless by copperthiefs and vandals.”
But this would raise a moral-hazard problem. Economists like myself face the same dilemma every economic cycle. People, who took on unnecessary risks, need to be taught a lesson — so they won’t make the same mistake later on. Bailing them out now will increase the likelihood that similar housing crises will occur in the future. Bad habits have to be eradicated once and for all.
But do they really learn their lesson? In my experience people don’t change. Those who lack judgement will most likely do so after the foreclosures are over. Best thing would be to abolish loans targeting individuals with bad credit records.
Besides, I’m not saying we should bail them out. I’m saying they could be offered to live in the houses temporarily in exchange for maintaining them.