A solution to the economic crisis

Everybody has an opinion about the economy. Everybody has an easy solution. Some get on TV and articulate their ideas.

For example, O'Reilly says that all we need to do is establish a one percent federal sales tax. obama says that we need to tax the rich and give that money to the poor.

Easy solutions. But, can they...will they...work? Will they be effective?

I don't know. But, I do know that I also have a solution. I don't have the chutzpah of an O'Reilly or the progressive genius of an obama. But, I do have an opinion and I'm willing to state it here.

My hypothesis is that the housing market is the problem. Duh... If we can clean up the housing mess, we can get the economy back on track. Easy. But, how?

I submit that we need to encourage the banking institutions to re-finance all of the outstanding housing loans that they have on their books. All of them. Even the loans for houses that aren't under water. We must be fair. We must apply these countermeasures in an even and equal manner as is humanly possible.

And, we must implement this plan without any input from outside agencies. All of the paperwork can be done within the banking industry and without need for any action by the consumers.

The first step would be to establish a methodology for determining the real value of all of the houses in America which have an outstanding mortgage. This process could be done using a statistical methodology similar to what is used by the Zillow website. Zillow uses statistical algorithms to collect data and divine a value for every house in America. Of course, those numbers are suspect to everyone, including realtors and homeowners. And, they aren't really perfect in any form. However, the numbers do take local environments into consideration. In essence, this is a Bayesian solution to a supposedly unsolvable problem. Start with something, anything, and then work from that initial guesstimate to iteratively arrive at the ultimate solution set. The alternative is to perceive that the economic markets will correct themselves even though we tend to always manipulate them anyway in myriad other ways...for example, by attempting to create artificially low interest rates for low income families so that every family can have their own home, even if they cannot afford to make their payments.

Once the value is established for every house in America, we can convince the banking institutions to then adjust the principle on every loan to match this new assessment. And, every loan will be converted to a fixed rate thirty year mortgage. No more ARM's or interest only loans will be accepted.

So, for example, if a family bought a house in 2006 for 230,000 dollars and still owes 220,000 dollars on the principle, the loan will automatically be adjusted to the current Zillow value which may now be 180,000 dollars. So, now the homeowners would owe only 180,000 dollars and have their loan rate as whatever the current fixed rate would be, say 4.03 percent.

All short sales would be abolished. The homeowners can then market their houses for whatever this revised current value is or they can stay in the home and pay the revised rate on the revised principle. One major problem which is crippling the housing market is the paperwork involved in resolving monetary issues which are currently out of control. Short sales are the perfect example. It now takes six to eight months for a buyer to bid on and then buy a house that is listed as a short sale. And, these short sales automatically and dramatically alter the selling price for houses which are not in a foreclosure or short sale mode.

However, if the homeowners still cannot make their payments, they will need to move out of the house in a definitive and fixed amount of time in the future. For example, this time could be two months from the activation of this proposed process.

Also, none of these loans will allowed to be bundled into investment opportunities for derivative funds. We need to hold the banks who made the loans liable for any financial repercussions rather than allowing them to pawn off the risks to derivative investors.

Then, after this process is initiated, it will be manipulated and refined on a quarterly basis to better reflect economic realities and to adjust the process so that it runs at an optimum level.

After the housing market stabilizes, we can then go back to allowing the laws of supply and demand to drive the market, as it should be.

We are in tough times. We need tough and innovative solutions. The invisible hand of the economic engine that should exist in current democratic societies now needs to be guided somewhat for a short period. We need a stern professor dictating definitive steps to get us out of this economic morass. Then, we can allow the market to revert back to the age old principles which worked well in the past but are failing us right now.

Of course, I've probably forgotten to address some important issues at the detail level. But, this proposed solution is at the hypothesis level, so it needs to be tested and pondered for a time to flesh out the problems which it will create and also determine if any glaring "side effects" will be manifested.

So, there it is. I challenge somebody, anybody, to come up with a better solution. Don't just lament our current state of affairs. Instead, think of some solutions which may work. The more we think about these types of problems, the better the chances we have of coming up with viable solutions.