How Ken Griffin would spend your money

By Felix Salmon
April 27, 2009

Kelli K asks, in the comments, for a bit more detail on what exactly Ken Griffin was proposing this morning when he said that the government should socialize housing-market losses. He did use those words, but didn’t go into a lot of detail; later on in the panel, he talked about one idea which may or may not have been one of the proposals he had in mind.

Griffin said that the economy won’t recover until the financial system does, and that the financial system won’t recover until the housing mess is resolved, and that the housing mess won’t be resolved until the huge overhang of unsold real-estate is dealt with, and that the huge overhang of unsold real-estate won’t come off the market unless and until people start buying houses again, and that people won’t start buying houses again unless they can come up with downpayments, and that people clearly can’t come up with downpayments because the US savings rate has essentially been zero for most of the past decade. So Griffin’s proposed solution was for the government to provide low-cost, full-recourse 20% downpayment loans to anybody who wants to buy a house. Yes, he said, no-money-down house purchases were what got us into this mess to begin with, but we kinda need them in order to get out of the mess too.

I’m not sure this idea really works that well, because homeownership rates move slowly and aren’t going to rise overnight just because of a downpayment assistance program. But in any case, that’s (one of) Ken Griffin’s big idea(s). In general, of course, everybody has their own pet idea for how the government should spend a few hundred billion dollars in an attempt to shore up the economy. The trick is to find the ways of spending money which are (a) politically feasible; and (b) get the most bang per buck. And that’s almost impossible, given the anger in Congress these days.


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I would actually love this. I recently tried to buy a home because the market is so cheap, and since the home would not qualify for an FHA loan, I applied for a standard loan. They want 20 percent down! My credit is not stellar but it is not in the dumps either. There is no way 98 percent of the population can afford 20 percent down on a home loan. No wonder no houses are selling.

Posted by Chris | Report as abusive

Immigration is a no cost solution to excess property inventory

Posted by marc | Report as abusive

@ Chris: I also cannot get huge loans to make big purchases I can’t afford. What an outrage.

Posted by ab | Report as abusive

Huge loan?
it’s a 135000 loan for a 3 bedroom, 2 bath house.
I make that much in 2 years and I have no outstanding debt.
I can easily afford an 800 dollar a month mortgage payment.

I don’t think you understand that you really CANNOT get a standard loan nowadays with less then 20 percent down with average to above average credit. That means that less then 5 percent of the population can afford to purchase a home at the moment unless they qualify for FHA.

Posted by Chris | Report as abusive

This seems like a pretty good idea, except I would limit the government loan to 50% of the downpayment, so the buyer would still have to put up a 10% downpayment. This should be easier to get through Congress than loan-forebearance schemes or more bank bailouts, since everybody wins: home-owners see the value of their property rise, renters are given a boost to become owners themselves. It’s a more populist solution – helping home-buyers, instead of rescuing banks and people who bought more house than they could afford.

Posted by Nate | Report as abusive

“That means that less then 5 percent of the population can afford to purchase a home at the moment…”

I’d be interested to see if you have any data to back this up.

And I realize that 20% looks big, but I don’t see why people shouldn’t have to put that much down. At the very least, it restricts another bubble from forming and might encourage Americans to start saving again (at a 10% savings rate, you can afford that down payment in 4 years).

Posted by ab | Report as abusive

I personally don’t know anyone that has 26000 handy for a 144000 loan (as an example). Do you? If so, do they live in 144000 houses or 350000 and up houses?

I would be willing to bet that if you asked 10 people that you knew that made 80 grand and under a year if they had 26000 handy to put down on a home, that you would find maybe one that could do it.

The majority of Americans cannot afford that kind of payment to start a loan up.

Posted by Chris | Report as abusive

Thanks for the response, Felix.

Well, it IS an idea, and I applaud Griffin for putting something out there. I am amazed at the general lack of ideas–even of discussion–regarding the housing crisis, given the number of people impacted by it.

However, there is no way the govt should give people their downpayment (Nate’s suggestion of half is a bit more palatable). People have to have some skin in the game. Otherwise you’re just renting from Uncle Sam and one of his chosen banksters. Forgive me for not being enthused.

As for myself, I put down 25% on my dream house 5 years ago, and I can tell you I will not be making that mistake anytime soon (even if I could afford to). This crisis has done more than burn people in the here and now. It has soured a lot of us on homeownership PERIOD.

There are simply too many “hidden” costs involved in owning a home today. It goes well beyond the cost of a down payment or a monthly mortgage payment. The run-up in property taxes across the entire country (as county and local authorities cashed in on the boom) has a major role to play in the collapse of the RE market. Here in Cook County my taxes almost doubled over the past 5 years. Who could have planned on that? We were squeezed even before our income dropped in half. Additionally, people have no idea how much it will cost to maintain/improve a home before they buy it. Charming old houses are a money pit.

I have run the numbers and I would be able to rent a comparable home in my neighborhood for about half what I pay in mortgage, insurance, upkeep, and property taxes. With no prospect of a significant uptick in the near term–quite the opposite, in fact–why should I carry on as a “homeowner” (really, bank renter)? I’d have to be a fool, and there just aren’t as many of them out there as the govt and banks seem to think (of this I am glad).

Back to the ideas jar, please.

What if instead of socializing the losses, the government simply began burning down foreclosed houses? This would provide incentive to both the banks and homeowners to avoid the foreclosure outcome, and it would reduce the overall US housing supply, helping to boost prices back to pre-crash levels.

Aw, but Felix, you forgot the part where Griffin said we all benefited equally from the credit bubble, it’s just one of those “Animal Farm” situations where some of us are MORE equal than others.

Like the oh so deserving Ken Griffin.

So now my taxes need to guarantee another credit bubble so Griffin’s business can be “more” equal.

My head hurts.

What a jerk.

Posted by Tim Connor | Report as abusive

so wake up – they tried this in the 30′s and said there was “too much” crop produced and the government destroyed it to bring prices up… and with other wonderful programs prolonged the recovery for a decade.

So let’s BULLDOZE 20% of the homes!

Posted by Fred | Report as abusive

Felix – Why is there no talk anywhere on “rightsizing” the economy. Everything is stated in terms of what could we use a few trillion on to get the economy back to the unsustainable overheated levels that got us into this mess? We won’t have the money to repay this debt.

Posted by Tom Cole | Report as abusive

For “permalink”, there are no hidden costs with home ownership. A specific house may have an undisclosed major problem (cracked foundation, mold starting in the basement, etc.); however, home ownership costs, such as utilities, maintenance, property taxes, insurance, etc., are what they are. Not everyone who initiates a home purchase actually endeavors to learn about what it takes to own a home.

Property taxes rise with over-heated housing markets; the tax appraiser uses actual sales prices to determine “tax assessed value”. If the sales prices are produced by laughably lax credit standards, the tax appraiser has no mechanism to say, “that’s not a REAL sales price”.

And for the general discussion, forget about “socializing the cost” of the housing debacle. The Government has NO MONEY, except what it collects in income taxes from the neighbors of the people who received loans that they could not possibly afford. Let the printing presses at the U.S. Mint run on overtime, and not have a commensurate rise in the marginal productivity of labor, and all the extra printed money simply devalues the currency in circulation (the alternative name for this action is price inflation).

To say that the Government is forgiving a mortgage loan, or otherwise modifying it in favor of the person who remains in the house that they could not possibly afford, is to say that the Savers in the United States are being forcibly compelled (the IRS tax evasion regulations are gruesome) to fund the profligate lifestyles of people who should not be home-owners. And after CNN finishes the story about the legitimate homeowner who was laid off (the one that makes the populace think, “gee, this whole thing could happen to anyone…”), they should play a thousand stories of people who obtained, through ignorance or deceit, mortgage loans that they could not possibly afford.

One way to approach the problem is to look at from a perspective of rewards. If you punish the savers, and reward the hyper-debt spenders (leave them in the house that they could not possibly afford and you have rewarded them) and you not only destroy the will to save, you destroy the seeds of capital that are necessary to pull the country out this mess. Savers are the ones who provide banks with money to loan. No savers, no capital for banks. And you don’t encourage saving by sticking a Government gun to the savers heads and demand that they bail-out the profligate among the population with either increased taxes, price inflation, or both.