Measures that effectively treat the root cause will improve the chances of shortening this painful cycle. Likewise, actions that create a considerable risk of extending the cure period are counterproductive and should be avoided.

With this in mind, all regulatory proposals posing the risk of delaying or otherwise adding complexities to markets already burdened by uncertainty should be abandoned. Resources should also be dedicated to remedial steps that will foster acceleration in the recycling of distressed housing inventory, including the shared appreciation program described above. In contrast to the “gift” of principal balance forgiveness proposed under the Frank-Dodd proposal, a shared appreciation arrangement provides for later reimbursement of some or all of the subsidy. By including a quid pro quo component there is less of the stigma of a “homeowner bailout” and a degree of fairness to homeowners who demonstrated fiscal responsibility by taking on only so much mortgage as they could afford.

Legislation empowering the courts with greater discretion in bankruptcy proceedings cannot possibly be an approach to getting this economic cycle behinds us. Since when have the courts ever been considered the most expedient and cheapest way to resolve adversity?

Greater discretion promotes factual inquiries and allows attorneys to devise creative strategies that inevitably add expense and delay. Additionally, the added uncertainty as to creditors’ rights relating to mortgages does not support the principle of promoting liquidity for the related capital markets. 

Other regulatory proposals that need to be quickly abandoned are assignee liability, moratoriums on foreclosure and interest rate freezes—all of which undermine recovery of the capital markets without providing any real path to expedient resolution. Administer the medicine, bear the pain and let’s move on to better times as soon as possible.

While critical of the remedial approach to date, this assessment is not intended to imply the absence of laudable intent on the part of our leaders. Rather, it is the inherent limitations posed by economic and intellectual standing and politics that often stands in the way of a cohesive plan. Central bankers tend to operate in the world of academic theory. Political leaders survive on their talent for identifying and supporting populist solutions that may unintentionally prove costly and miss the mark in truly addressing the issues. Simply put, a practical and cohesive plan calls for greater inclusion of market participants that are closer to where the rubber meets the road on Wall Street, Main Street and in Washington.

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