Saturday, September 24, 2011

More Productive Thinking than the Normal Complaining


Rather than pledging up to $400 billion to protect the off-balance-sheet Government Sponsored Agencies (GSEs) Freddie Mac and Fannie Mae…

…why didn’t / doesn’t the government just set up a public REIT and take out-right ownership in the houses???

Put another way, there is ‘closet’ socialized risk in backing the validity of the mortgages in the first place, where the spurious belief is that free markets are therein left alone to work. Yet moral hazard has already taken its toll. That’s why I pose the question: why not just claim the ownership (and risk); protect the nation from future liability matching schemes; keep the national balance sheet in some kind of order (that is actually on the balance sheet); and technically improve the supply-demand dynamics? Keynesian’s would love that policy because that is as direct as federal intervention gets! Plus the government would effectively be able to regulate and administer the benefits to society with genuine accountability.

According to JPMAM, homes make up 25% of the total national assets of $71.9 Trillion…so that is roughly ~$72Trillion x 25% = $18 Trillion. $400 billion is only 2.2% of the aggregate value…a meager and insignificant insurance policy in my opinion. Buying 2% of the worst segments of the market might provide a better ROIC than pulling the rug over an otherwise mess...

I will spare you from graphs here today. Just a thought to ponder, but an even better conversation topic! Be well...