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On Rescuing Homeowners Undergoing Foreclosure

Smartypants, i like your subtle reference to Ayn Rand's Atlas Shrugged.

Unfortunately, don't agree, and the data doesn't support, that people spend based on their current level of income, but rather spend based on their life cycle wealth. For example, a young lawyer might spend above his means b/c he believes that within 7-9 yrs he's going to make partner and make a lot of money in the future. Similarly, an investor may look at the value of his/her stock portfolio and say i'm going to buy that new BMW. When the value declines or employment prospects change for the worse, spending slows (and so does the economy).

Read, among his other works, Modigliani's 1985 nobel prize speech

Life Cycle, Individual Thrift and the Wealth of Nations

nobelprize.org/nobel_p...

Bottom line is people do spend based on their life cycle wealth and that includes the perceived value of all their assets which for most Americans includes their home.

When home values decline, people cut back on spending. While I don't disagree that income levels must catch up with home values, the health of our economy depends, to a great extent, on consumer spending. When people stop spending, companies cut back on capital projects, jobs are lost, and the economy slows.

I don't see how that's a good thing.

The SFRET plan gives individuals a chance to keep their homes without filing for bankruptcy. BUT it also holds them accountable to repay the government for the handout they're inevitably being given. Property values will definitely go up (to the pre-bubble levels) in the short or intermediate term, but they should level off and move up a little. In the long run (call it 10-15 years), property values will increase. In the interim, GDP can remain strong.