The restructured mortgages need to earn the prime status they should not before have been awarded.

Sir the chairman of the US Federal Deposit Insurance Corporation Sheila Bair opined on "How the state can stabilize the housing market", April 30.

She describes the pros of some current options but misses out on what is the most important rule of any restructuring namely that if you are going to pay for the costs of restructuring, this is normally only worthwhile to do, if you get it right once and for all; and that what is left in the pot is deemed as being of much better risk quality than what went in. In other words the resulting mortgages should have to earn the real prime status they should never before have been awarded.

In this respect when Bair states as a clear advantage that "it keeps the risk of re-default on mortgage investors", though it sounds about right, it should be irrelevant if the restructuring has been done correctly and the risk of re-default are negligible.

Let us not forget the rental options

Sir though I might have picked a somewhat more gentle title I agree full heartedly with Martin Wolf’s “Let Britain’s housing bubble burst” April 18. Having said that perhaps it would also have been appropriate to include a remark about the bias that has been spread throughout the whole world and that favours the ownership of houses as compared to the alternatives provided by the rental markets.

In a global mobile work market where a house when owned often signifies a ball chain around the ankle it would seem that renting should be a very good option, if it is able to overcome the stupid hurdle of having almost been socially derided as a second class choice.

Who suckered who is the wrong debate

Sir George Soros writing about “The worst market crisis in 60 years” January 23, is right to say that resulting political tensions…may disrupt the global economy and plunge the world into recession or worse. Unfortunately he then adds coal to that fire when he speaks with venom about how “Globalization allowed the US to suck up the savings of the rest of the world”, knowing perfectly well this was mostly because of the immense reserve accumulations of dollars voluntarily made by governments, mostly to keep exchange rates artificially low in order to, in Soros phraseology, suck up jobs. Who suckered who is not the debate the world now needs.

That the US should have ignored the financing offers they received from the world and behaved with more discipline not one doubts, but neither would then other countries have been able to strengthen so much so that they now can perhaps take over some of the pulling responsibilities of a bit tired US economic locomotive. How that can best be done is what we should be debating.

Financial Time’s Hillary Clinton interview

Sir the following is my reaction after reading the interview of Senator Hillary Clinton, conducted by Financial Times ’s Washington bureau chief Edward Luce.

Protectionism: Full fledged competition in a globalized world would have eroded the profitability of many companies had we not awarded them the protection of intellectual property rights, and invested some serious money in making that shield mean something. Can you imagine Microsoft in a world where efficient software copiers are free to roam?

Therefore since most of labor have not been furnished similar new protections, and some old ones have in fact been taken away, it should not come as a surprise that the share of labor income as a percentage of GDP is dropping, and that this is, certainly and rightly, creating a source of conflict.

So what’s to be done? There are only two choices? Either we award to labor similar protections which would set us all on a de-globalization route, a lose-lose proposition; or we must require that the beneficiaries of intellectual property rights give back some extra of their quasi-monopoly based extra earnings to the society. As an absolute minimum, this should represent the direct cost of enforcing and defending their rights. Is this protectionism? No at all!

Review of existing trade agreements: Absolutely. In some of the US bilateral agreement some prohibitions were imposed on developing countries because at the time they were considered as appropriate, but hindsight has led to other conclusions and so these clauses need to be revisited. For instance some US trade agreements prohibit any restrictions on capital movement even though now these restrictions are deemed quite good at taking away some of the excessive volatility that the waters of the global financial oceans can have on local bathtubs.

Energy and environment: “the most important thing is getting the US focused on energy efficiency, on clean renewable energy, combating global warming on raising gas mileage etc.” Just like the recent Nobel price recipient Hillary Clinton does not have the courage of spelling out what is primarily needed to really alter the energy and environment realities in the US, namely a substantial tax on gasoline consumption.

Housing crisis: Just like the US can sometimes use a Strategic Petroleum Reserve I would suggest the government buying a large amount of the houses currently involved with subprime loans; at a price below the current outstanding mortgage; financed by the current mortgage holder; and giving the current debtor a option to repurchase his house in a couple of years at a price that would keep the tax-payer form being harmed. That’s what I would do… but then again I am no PhD and so I could be wrong

Long-term benefits of a hard landing

Published in FT, August 23, 2006

Sir, While you correctly argue (“Hard edge of a soft landing for housing”, August 19,) that “even if gradual, a global housing slowdown would be painful” you do not really dare to put forward the hard truth that the gradualism of it all could create the most accumulated pain.

Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.

PS. At World Bank 2003: “Burning a little each year, thereby getting rid of some of the combustible materials, was much wiser than today’s no burning at all, that only allows for the buildup of more incendiary materials, thereby guaranteeing disaster and scorched earth, when fire finally breaks out, as it does, sooner or later.”

PS. When the moment came, 2007-08, they preferred to kick the can down the road. This would have had a better chance of success if they had eliminated the distortions in the allocation of credit to the real economy that the risk weighted capital requirements for banks cause. Unfortunately they did not, and the crisis can is still out there and it will roll back on us... ever so much

PS. December 2018: “What goes up too much must come down too much. The best countercyclical policy there is, is the elimination of the procyclical ones.”