Innovation/Global Crisis Blog

 How Long Does It Take Obama To Turn On a Light Switch?

By Shlomo Maital

  

 

I don’t know how many people it takes in the Obama Administration to change a light bulb.  My guess is, about several hundred.  Because in the revolving door of appointments, his experts and advisors leave before they even learn what a light bulb is.   When Obama took office in early 2009, he was counseled by an all-star economic team that included Great Depression scholar Christina D. Romer, former Federal Reserve Chairman Paul A. Volcker (center) and former Treasury Secretary Lawrence H. Summers. All have since resigned.  They were replaced by lightweights, precisely at a time when innovative thinking is desperately needed.  Treasury Secretary Timothy Geitner has stayed on;  his departure would have been very helpful.  The wrong people left; the wrong people stayed. 

    The question now is, how long does it take the Obama Administration to turn on a light switch?  The answer: Two and one-half years.  Here is why.

     The core problem of the U.S. economy is the construction and housing industries. The core problem of those industries is simple: 

 By the last quarter in 2010, about 11.1 million homeowners, or 23 percent of all owners of residential property, owed more on their mortgages than their home is worth, according to CoreLogic.  The backlog of unsold foreclosed homes remains one of the biggest challenges for the administration in trying to boost a housing market still struggling to recover from its 2007 collapse.  A total of 657,044 homeowners have won a permanent modified loan as of June — a fraction of the 3 million to 4 million the administration had initially forecast, according to the Treasury Department.  In other words, only 6 per cent of those whose homes are “under water” have had their problem solved. Some 94 per cent have not. Great work, Obama!  Great work, Tim Geitner.

   In other words:  Almost a quarter of all houses are ‘under water’ (worth less than what their owners owe).  Many of those houses are empty, because their owners have walked away from them.  The banks who foreclosed have dumped them on the market, depressing housing prices.  The houses are empty, and do nobody any good.  Some people have lost their homes and have nowhere to live.  Entire neighborhoods in California are empty.   Until this problem is solved, there will be no economic recovery in the U.S. and there will be no significant fall in the unemployment rate (construction is highly labor intensive). 

     The solution:  A fresh start.  Create a government corporation that buys all the empty houses, or ‘under water’ houses, at market prices.  The cost:  Say, 11.1 million homes times an average value of $300,000, or $3.3 trillion.  Pay for the houses in special U.S. Goverment  30-year bonds.  Gradually over time, as the housing market improves (as it will), sell the houses, and recoup the funds needed to redeem the maturing bonds.  (The Government will make a substantial profit on this deal over the coming decade).   Rent the homes to the people now living in them, for modest rents, and offer them the opportunity to buy back their own homes over time.   

    The housing market faces a “second shoe” problem (waiting for the upstairs neighbor to drop the second shoe),  in the form of 11 million homes dumped on the market. By supply and demand, as long as that ‘second shoe’ of 11 million houses remains on the market, housing prices will never recover.  Get them off the market. The government is the only one able to do so.  Break the doom loop:  No jobs, no way to pay the mortgage, foreclosure, slumping housing prices, bad economy, no jobs, no way to pay the mortgage, etc….

   Why is it so hard to take decisive action to solve the under-water problem?  Why does it take so very long for the Obama Administration to turn on a light bulb?  Why has America been doomed to live in darkness, by an Administration that has disappointed not only Americans but people everywhere?    Why are so many Americans living ‘under water’ for so long they are growing fins and gills?   And why have those 11 million ‘fish’ not organized effectively to protest? 

    A Reuters report yesterday stated:  “The Obama administration is looking at options for reviving the housing market, an Achilles heel for the struggling U.S. economic recovery.”   Two-and-a-half wasted years, and Obama is still “looking at options”.  He may still be “looking at options” on Tuesday November 6 2012, when angry voters send him into early retirement.                    

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