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Roger Knights
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I'm a Seattle-ite, retired from computer programming. I'm a mere dilettante of the market.
  • How Government Could Help Homeowners: Buy Options on Their Houses' Upsides 1 comment
    Nov 7, 2009 7:33 AM

    I suggest that the gov't. take over where Rex & Co. left off, by offering homeowners a premium in exchange for a share of future profits on the sale of the house. (Say 15% of the house's current valuation in exchange for half the upside above its current market value.) This would buffer the effects of the current crunch on the homeowner, allowing him to make his mortgage payments and/or renegotiate his mortgage, while being a good long-term buy for the gov't. It’s win/win.

    Going further, I think the gov't should offer to pay for home-improvement projects for home-owners, again in exchange for a share of future profits on the sale of the house. There are certain desirable home improvements that wouldn’t require skilled labor, such as adding fencing, home security, and earthquake protection. Millions could be hired to do these tasks after a bit of videotaped training.

    This technique could also be used to fund purchase and installation of insulation, attic fans, south-side awnings, white-painted roofs, and heat pumps. The US needs to cut its energy consumption, and a little governmental nudging is OK to get us there.

    These initiatives would stimulate lots of economic activity; upgrade the country's housing stock; make life pleasanter for home-owners and their neighbors (who'd live in an upgraded neighborhood); reduce crime; and be a good investment for the gov't. in the long run. They would also be politically popular.


    On Nov. 2, 2009, Business Week published a three-sentence version of my letter above. Here's the link to it (hit page-down twice).

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  • Roger Knights
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    Author’s reply » I've posted the above proposal in the comments of about eight SA articles. The response was tepid: usually one or two in favor and an equal number opposed. A couple of days ago I posted its last three paragraphs on one of Edward Harrison's articles that dealt with the problem of unemployment. It drew only a couple of votes in favor, and 25 or so thumbs down I responded as follows:


    Wow--25 thumbs-down on my home-improvement scheme. I wouldn't have proposed it if I didn't think that the likely alternatives within the political mainstream weren't worse. If some sort of second stimulus package is coming, as seems likely, and if unemployment is becoming a focus of the current administration, then what is the best outcome we can hope for?


    IMO, it would be something that:


    1. At least gives the government some collateral in exchange for what it spends. I.e., there's a chance of its getting its money back, or even profiting, eventually.
    2. At least provides benefits for a large number (millions) of citizens, both the homeowners who'd get upgraded houses at no cost and the currently unemployed.
    3. Substantially reduces the amount spent on unemployment compensation.
    4. Can be implemented nearly immediately.
    5. Has low bureaucratic overhead and relatively low likelihood of massive fraud.
    6. Can be terminated fairly easily, when conditions improve.


    Other alternatives that Obama is likely to consider would provide much less "bang-for-the-buck" and/or would take years to put into full operation. Many (most?) would merely prevent the unemployment or wage-reduction of currently employed Democratic voting blocks, such as union workers, gov't. employees, and greenies. Many would have high overhead or chance for waste. And such programs would tend to get entrenched and be harder to "sunset."


    This is pump-priming at its best. It’s like a communal barn-raising. If only FDR had done something along these lines! He’d be remembered more fondly today.
    17 Nov 2009, 11:54 PM Reply Like
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