“We are propping up the market on the backs of the middle class,” he said. “If we are going to prop up the market on the backs of the middle class there needs to be some kind of bailout for homeowners.”
To that end, White, who is slightly upside down on his own home, said he is a supporter of principal reductions for homeowners who are more than 20 percent underwater. He also thinks the government should issue hyper-low-interest mortgages to help keep housing costs down.
It’s not so much about making a moral argument for people to walk away, he said, but fixing a burden that middle-class owners are being forced to carry.
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Early last year, Roubini suggested an across the board mortgage haircut for all homeowners. In my opinion, this would have been far more effective than any of the economic stimuli and bank bailouts to date.
The powers that be refuse to do what is necessary. That namely is to let the banks fail. Banks of any size, large or small need to die if they are dead. All of the pain we are presently experiencing is due to the artificial life support for entities that are by classic definition, dead.
I’m not sure if I agree with White and Roubini on the haircuts. But they would be no worse than what we have now. I do disagree with White’s assessment that artificially low interest rates will drive down housing costs. After all, it was artificially low rates that caused the real estate bubble to begin with.