Mortgage values just part of answer

Ed Dornlas, Las Vegas

Thursday, Nov. 10, 2011 | 2 a.m.

On Sunday, Brian Greenspun wrote of “two ideas to pull this city out of recession.”

He puts his finger on the problem we have with housing, that is, maybe three of four local homeowners owe more on their properties than they would bring in a sale. The ramifications of that situation tie the local economy up in far-reaching ways. People can’t trade up, people can’t sell so that they can move to take a better jobs or even sell to become renters. Bank foreclosures lead to declining property values and neighborhoods.

I think Mr. Greenspun almost has the solution. The mortgages do need to be carried at their true value, that is, marked to market. The government protects the banks from taking the reduction in values and lowering the banks’ balance sheets in some cases by letting the Federal Reserve buy the “toxic” assets at face value. The government thus continues to bail out the banks and protect them from the results of their bad loan activity.

Recall that the mess began when the government and banks got together to induce weak buyers to buy. To solve it, we need only get the government and the Fed out of the equation and enforce the rules against the banks carrying assets at more than their current values. Another private party could purchase the mortgages at market value and then renegotiate the loans with the homebuyers. Some banks might then have to reorganize under the bankruptcy laws.

Properly priced, housing would quickly recover.