Market-Based Solutions: The 20% Zip Code Housing Plan
Conn Carroll /
University of Chicago school of business professor Luigi Zingales has a plan to address the housing crisis that doesn’t involve bankruptcy judge cram downs or a federal government bailout. Before he gets to his plan, Zingales outlines what any government intervention in the marketplace must prove before it should be enacted:
1. the market imperfection that is being addressed must be clearly defined and explained;
2. the government cure must prove that it is not worse than the market disease.
The current stimulus bill, the TARP bailouts, and all of the housing bailout solutions floating around Capitol Hill fail either one or both of the above criteria. Zingales plan?
Congress should pass a law that makes a re-contracting option available to all homeowners living in a zip code where house prices dropped by more than 20% since the time they bought their property. Why? (more…)