http://www.fivethirtyeight.com/2009/02/land-of-thousand-liebermans.html

I acknowledge you have good points about the specific neighborhoods where there are a lot of empty houses, and about banks being uninterested in refinancing at a loss, and about the psychology of owning a negative-equity home.

A lot of people seem to think that if they have negative equity (and no other issues), they are in danger of losing the house. This is not true and maybe we need to make this clear.

I think we'd be better served with a mini-bankruptcy law that said: "If you walk away from your house this year, it can't be considered against you when you buy a new house this year, and it will come off your credit reports completely within 3 years." Combine that with a tax credit, and let people rearrange themselves into new housing nationwide.

People shouldn't stay in houses they can't afford. They should be encouraged and helped to move into different housing that they can afford. Current renters should be given at least as much consideration and help in becoming new homeowners as current homeowners receive.

Of course, a lot of people lost a lot of money in the stock market - we don't

For economic policy, the question isn't whether we get back to where we were, it is what is the difference in outcomes given multiple possible actions. So, when you say:

What makes you think income will rise in a downturn when they didn’t rise in the good times?

The answer isn't what will make income rise, it is which will lead to greater incomes - increasing government spending, offering low-cost loans to homeowners, or neither. Most economists would probably say increasing government spending will lead to greater total income. Also, when economists measure "income", we're usually talking about the sum of all the income of everyone employed within the economy, not whether or not Joe the Plumber got a raise.

Mortgage interest rates are NOT very high at all. ARMs based on the current interest rates are not killing the economy. Inflation is not and has not been out of control. I have little sympathy for any homeowner whose financial situation has not changed (still employed at the same level and for the same wages) and can't make their housing payments. If they have too much of their money going to housing payments now, they had too much six months ago. Move somewhere you can afford.

You want to "move the inventory we have"? Fine. Give a tax credit for new purchases.

But there is nothing threatening about owing more on your mortgage than the house is worth. If that's your only problem, you can continue to pay your mortgage until you own the house outright. Doing so won't kill you no matter how long you wait.

- Yes, that is the point of a government stimulus.

You want to help homeowners? I'm not against reasonable steps to do so. I'm not sure your proposal is a reasonable way to go about it. We know that a large tax credit for new home purchases helps rebuild the housing sector - it's one thing the government did the last few times we had a housing bubble burst that helped.

IMO, homeowners are not the top priority here. If they could afford their home six months ago, they should still be able to afford it now, assuming they have the same job and pay. Being underwater is not the end of the world.

People being out of work, however - that's something that we should address right away.

According to Wikipedia: "Unemployment declined by over one-third in Roosevelt's first term (from 25% to 14.3%, 1933 to 1937)"

No, the US did not fully recover to the point where it had been at in 1929 until the war economy took over. But compared to the trough, things were on an upswing.

And beyond employment, there were significant improvements in home ownership and infrastructure - see the TVA for some examples of infrastructure improvements.

While I've not seen anything definitive, in general it seems that the less well-off you are the higher a percentage of your income you are likely to spend, so there's often a greater expected stimulus impact when employing (or simply making transfer payments to) lower-income people than you get with tax breaks for the wealthy.

I'm sorry, but I think this is a terrible idea.

First of all, a lot of people who would benefit from this proposal are perfectly capable of paying their mortgage payments without help.

Second, anyone who didn't put themselves in a position to get this kind of help is immediately labelled a "sucker".

Third, the main beneficiary of this program would be the banks who made bad loans, since they're the ones on the hook to take a loss if the homeowner walks away.

Fourth, the "value" of your house has nothing to do with your ability to make your mortgage payments, all it affects is your ability to get a new home equity loan.

Fifth, there's absolutely no timeline associated with this proposal. Would you recalibrate how much the government pays every month, as prices may rise or fall rapidly? That doesn't do much for home budgeting, does it? When would the program end?

We had a housing bubble. It is not practical to try to prop up home values to the level that they were at when the bubble was at its height. With the drop in housing prices, owners who are underwater should be looking to move into a new place that is cheaper, and getting out of their bad loans. If you want to help them do this, AND help the responsible people who didn't jump into the market with no-money-down loans, then provide a major tax credit for home purchases. This will increase demand and indirectly help the homeowners who don't sell, since housing prices should end up higher than they otherwise would be.

When I heard on NPR one of the local Republicans saying that "you should stimulate the economy by cutting spending and cutting taxes" I yelled at the radio "you just failed Econ 101!!!"