The government could have done the following at the first signs of financial distress in the real estate market of 2008/2009. This is not hindsight. I had the suggestion in my blog at the time.
The method was to have government buy up at bargain prices all the unsold tract homes in bubble-infested areas, such as Arizona, California and Florida. This would not have been a bailout for the builders. They would have suffered losses on their over-zealous behavior.
It would have dried up the major excess
supply of real estate and stopped the ongoing, adverse psychology that kept reducing values of the rest of the nation’s perfectly good real estate that was not too overvalued. The cost would be relatively very low, compared to the many billions and even trillions the U.S. has expended.
The federal government, through one or more of its agencies, could also have guaranteed all the loans of its banks, the way the FDIC insures deposits. Fees would be charged the banks for the guaranty.
No bailout funds from taxpayers, no phony stimulus funds which really amount to political slush funds. No poor psychology that makes banks wary of making loans to small business; thus more job creation.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)
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