Reich and Zandi on how to fix housing

Marketplace Staff Jul 2, 2009
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Reich and Zandi on how to fix housing

Marketplace Staff Jul 2, 2009
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STEVE CHIOTAKIS: Ask any economist about an important key to our financial recovery and they’ll point to housing. The Obama administration has tried a number of programs to stem the foreclosure rate. But right now the housing market remains unstable. So what’s plan B? Time this morning for a little back and forth. We asked a couple of commentators, Robert Reich and Mark Zandi, about what other actions the government could take. Zandi says loan modifications. But Robert Reich says, he’s not so keen on that.


ROBERT REICH: Are taxpayers going to bail out all of these underwater homeowners by reducing the principle?

MARK ZANDI: You know, I think taxpayers are going to have to ante up more. I think it’s important for people to realize that if we don’t solve this problem and bring an end to it, house prices will continue to evaporate and we will all be a lot less wealthy and tax revenues a lot lower. So I think it’s a necessary investment. What do you think? I mean how can we address this?

REICH: I would be in favor of a national moratorium on foreclosures. Several states have tried it with some success. Why not a six month national moratorium on everybody?

ZANDI: When we have tried it — a lot of states as you pointed have tried it — and it didn’t really help. In fact as soon as the moratoriums were off foreclosures started to surge again. And you know, you’re not solving the underlying problem, and that’s rising unemployment and falling housing values. And I’m not sure that you’re going to solve any problems by just delaying the problem.

REICH: If you delay it long enough then housing prices begin to start turning up again.

Here’s another idea: What about the cramdown provision? What about simply allowing people, as they’re allowed with their second homes, to declare bankruptcy and to reorganize their finances? After all big corporations can do it. At the very least this would give homeowners more bargaining leverage to change the terms of their mortgages, right?

ZANDI: Probably will be other fallout from that. I mean for example when people file for bankruptcy, they will not only get their mortgage crammed down, but you’d reduce the amount of credit card debt they owe, health care bills, everything else that they have debts on. And it creates other problems for the rest of the financial system that I’m not sure we truly fully understand the consequences of.

But listening to you talk, it does highlight the complexity of this issue. I don’t think there’s any other issue that policymakers face that is as difficult as the current housing foreclosure crisis. There’s no easy answer to this one.

REICH: Yeah. Well I’m still going to hold on to a national foreclosure moratorium until you absolutely convince me otherwise. Mark, it’s great talking to you.

ZANDI: OK. It was great. Thank you Bob.

CHIOTAKIS:Mark Zandi is the chief economist at Moody’s Economy.com. Robert Reich teaches public policy at the University of California at Berkeley.

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