Alan Blinder, the former vice-chair of the Fed gives a cogent analysis of the state of the US real estate market in a WSJ oped today. Blinder underscores the seriousness of the situation and argues against a laissez-faire let the chips fall where they may approach.
His policy prescriptions pick up a number of threads outlined in a New America Foundation report published last week (see Oct. 11 blog entry). Specifically, Blinder recommends a fast track, streamlined refinancing program on Fannie and Freddie Mac guaranteed mortgages. Second, he argues that some form of principal reduction program is necessary. At the same time, Blinder acknowledges the moral hazard issue and would structure the program so the lender offering the reduction shares in any potential upside if and when real estate prices recover. Finally, Blinder suggests a program to convert vacant properties to rental units. He suggests some kind of financing program for private capital to facilitate these conversions.
This is all good stuff. But as Blinder correctly points out, we need the vision and political will to move these ideas forward. Right now, our friends in both parties seem to think it's business as usual. There seems to be little understanding of what is at stake here.
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