This seemingly brilliant plan solves many problems at a stroke: firstly, families facing repossession could maintain some stability in their lives. Without the trauma of losing their jobs and the money paid for a home that is no longer theirs, not even in the slightest (which is no small matter). The banks, for their part, having been suitably bailed out as is already happening through the state’s purchase of subprime mortgage-backed securities, would find themselves with market-rate rental income from the properties they once financed and which now become their property. Consequently, we would no longer see that flood of properties being dumped onto the market, with millions of homes being offloaded at any price. This would prevent a fall in property prices, which would plug the holes in the balance sheets of the financial institutions in question within a matter of months. It would also prevent the acts of vandalism the common practice among those facing repossession of vandalising their homes before leaving them, in a final act of defiance against the banks – in other words, what has come to be known as the destructive syndrome of the on the verge of being seized (as we can see in the second half of the following video):
A solution, then, that appears to benefit everyone. But just as is the case, for example, in molecular biology or genetics, any seemingly positive change can have unpredictable and undesirable consequences. In economics or macroeconomics, the unknowns are endless, not least because, ultimately, it is people who are involved, with their corruption and greed, chance… and unthinkable butterfly effects such as changes of government in a remote country, religions and unspeakable affinities, wars, pandemics, conflicts, and a million unknown causes that can distort the expected and anticipated effects. And intervention in the markets should only take place when necessary, whilst attempting to violate as few universal laws as possible and, moreover, keeping our fingers crossed. Having said that, let us try to anticipate some of the consequences which, a priori, could worsen the future scenario.
The first question that springs to mind is why help unemployed homeowners but not all homeowners in financial difficulty. Or why not help those who are already renting and become unemployed. In short, why this discriminatory double standard based on the impact and damage that the mass bankruptcy of these families causes to financial institutions? The injection of state money in exchange for worthless mortgage paper helps the banks. But it provides no help, at least not directly or indirectly, to the unemployed homeowner.
Another consequence with potentially dire effects is that the banking sector would dominate the property market and, consequently, market prices—both for purchases and, to a large extent, for rentals. The prices set by financial institutions (even those not in danger) would be higher than market rates, for their own accounting convenience, making the property market even more illiquid and yet more expensive. That is the result of intervening in the market in a perverse and concerted manner.
Anyone interested in buying a house currently rented to its former owner (who would be «encouraged» to vacate it voluntarily) would be granted a mortgage with favourable terms, even if they were not creditworthy, since, in the worst-case scenario, the bank could repeat the process, reducing the cost of the property to the bank with each transaction (of course, obtaining a mortgage to buy a house sold by a private individual would be impossible). Besides, what the hell, all the banks would do the same and the distinction between buyer and tenant would blur. It would also have deflationary consequences that would affect CPI figures in ways that would be difficult to manage. And many others that emerge as we spend time imagining this hypothetical scenario.
If one were to be cynical, it might be a concerted strategy to prop up US property prices (Spanish prices still have a long way to fall before anything like that could be hatched). The reality is that most of the property market would be under the absolute control of the banks, and that smacks of abuses even more unjust than the relentless laws of supply and demand. At the end of the day, we would be intervening in the market, but not through the State, as we proposed at the start of the year in Mortgage socialisation and Bad Owners, but from the bench. Extremely dangerous.