Sunday, September 28, 2008


Holman Jenkins over at the Wall Street Journal had proposed several times about how to fix the financial crisis.

Basically the root of all problems is depreciating house prices.

So he proposes...

Meanwhile, use taxpayer dollars to clean up the housing mess in the Southwest and Florida -- the surprisingly confined source of all our troubles.

Every time we mention demolishing houses, somebody slaps us over the head with Bastiat -- the French economist who'd say you don't increase wealth, you reduce it, by destroying some houses to make the value of others go up.

True -- but we're in a situation today where responsible homeowners will pay one way or another for the acts of irresponsible lenders and buyers. The cheapest bailout would be one that weeds out enough surplus housing to stop the free fall in a handful of overbuilt markets, whose foreclosure epidemic is dragging down the entire securitized mortgage market. We're talking about buying thousands of houses, not millions of mortgages. And yet the resulting higher mortgage debt prices automatically would help to recapitalize the banks, while (knock wood) leaving some Paulson powder dry for future contingencies.

The fine print of the Paulson plan includes sweeping authority to buy "other assets." Going after houses and knocking them down would fit this commodious garment -- and would let the agency wrap up its work quickly and go away in the natural course of things, whether everyone was satisfied with the result or not.

That's a virtue not to be sneezed at. All the monumental interventions of recent months will have unintended consequences. Once the panic dissipates and the political class returns to form, we'll have a hell of a time unwinding the cure.

I have no idea whether this plan will ever be implemented. But I would say this, if Jenkins wants to sell this plan, he has to stop calling them "surplus housing".

In fact here in Hong Kong, we do have a mechanism that could be used to reduce housing stock. And that's called "Urban Renewal".

When I was a younger man and Hong Kong was in a total slump, I did think about a massive increase in urban land purchases in the name of urban renewal. The government could literally have a land bank that could then be auctioned off when times get better.


  1. good idea, that's what i want to say too.

  2. hehe...then 'hoarding',
    like west kowloon, tamar, hong wan, etc.

    you can also just simply kill those people who got bankrupt...

  3. 要研究点處理廢棄水泥,大生意!!

  4. hahahha

    Yeah... hoarding.

    Everything for the continued stability of the banking system.


  5. You can have Urban Renewal in an URBAN area where land is scarce, especially in Hong Kong. Land is relatively cheap and abundantin the U.S. Most of those surplus housing are in the suburbs and exurbs.

    Jenkins' idea is wacky and it might make academic sense... but yours... well can't fit a square peg in a round hole.