What We Should Do Part 2
So people at my work thought my idea of bulldozing foreclosures is crazy. The world is crazy right now.
BUT the main argument was "you are tearing down real assets, real wealth". Now...let's examine this...is it true?
1) There is no such thing as real assets unless it is liquid and you are able to spend it at that value (of whatever you think it's worth) at that minute. Otherwise, it's relative. For example, a house in Pre-Katrina New Orleans was probably worth a lot of money at one point if it was nice and in a good neighborhood. Now it probably has negative value. The labor and costs that went into that home is really a null issue--it's simply more of a liability to own or maintain that house than to keep it.
2) The land is what actually costs in a house. The house itself would shock you in how relatively inexpensive it is to make. You can realize this when you think of two 5,000 sq ft homes of same craftsmanship...one in NY and one in Wyoming. The one in Wyoming, will be about 1/10 or even less of that cost than the one in NY. Why? The land is the true value in these homes.
3) Even if we are losing money, how is a $700 bill bailout paid by tax payers (vs. paid by the banks) better? We need to still stabilize the home prices. The other argument was that the market is down because of home prices are overpriced. That's only true if people actually wanted to keep their homes. Right now people are selling homes because they are losing value. What does that mean? The prices will keep lowering and the more it lowers people will foreclose because they realize they owe more than they own...more lowering...more foreclosures...more houses in surplus... that will take a LONG time to flush out.
BUT the main argument was "you are tearing down real assets, real wealth". Now...let's examine this...is it true?
1) There is no such thing as real assets unless it is liquid and you are able to spend it at that value (of whatever you think it's worth) at that minute. Otherwise, it's relative. For example, a house in Pre-Katrina New Orleans was probably worth a lot of money at one point if it was nice and in a good neighborhood. Now it probably has negative value. The labor and costs that went into that home is really a null issue--it's simply more of a liability to own or maintain that house than to keep it.
2) The land is what actually costs in a house. The house itself would shock you in how relatively inexpensive it is to make. You can realize this when you think of two 5,000 sq ft homes of same craftsmanship...one in NY and one in Wyoming. The one in Wyoming, will be about 1/10 or even less of that cost than the one in NY. Why? The land is the true value in these homes.
3) Even if we are losing money, how is a $700 bill bailout paid by tax payers (vs. paid by the banks) better? We need to still stabilize the home prices. The other argument was that the market is down because of home prices are overpriced. That's only true if people actually wanted to keep their homes. Right now people are selling homes because they are losing value. What does that mean? The prices will keep lowering and the more it lowers people will foreclose because they realize they owe more than they own...more lowering...more foreclosures...more houses in surplus... that will take a LONG time to flush out.
posted by Jessica K. at 6:06 PM
2 Comments:
I think you should be chair woman of the fed.
I couldn't do a worse job than what is currently being done right now...yes?
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