There’s a nasty hidden cost of the Geithner-Summers plan to buy distressed assets for more than they’re worth. A commenter on the Balloon Juice blog points out that by keeping mortgage assets on the books for more than they are worth, the owners of foreclosed properties have an incentive not to sell them. “If a mortgage is worth $400K and the house sells for $200K, the Title Holders would have to write down that $200K loss immediately. But, keeping that house abandoned and unsold means they don’t have to write down any losses.” Empty homes sit vacant, attract vagrants and copper-strippers, and cause neighborhood blight.
The obvious cost of the PPIP is taxpayer ripoff. The Public Private Investment Partnership plan from Obama’s financial Tim Geithner and Larry Summers has investors take bad assets off of banks’ books for more than they’re worth, leveraged by taxpayer dollars. If the assets aren’t worth inflated prices, taxpayers bear the loss. If the assets go up, taxpayers get only half the profit. The hidden cost is creeping social decay caused by squelching the market in the real houses beneath the mountain of fantasy investments.
To arbitrage this market failure, nonprofits have been creating schemes
to house the newly homeless in abandoned properties (the topic that
started the Cole thread) http://www.nytimes.com/2009/04/10/us/10squatter.html?partner=rss&emc=rss