Greg Mankiw's Blog: Two Questions for SAM

Greg Mankiw's Blog: Two Questions for SAM

For example, a homeowner unable to support payments on a house purchased for $200,000 that today is worth only $150,000 might be offered a write-down of up to $50,000. But this would not be a free lunch.

With the SAM, once the value began appreciating above $150,000, the mortgage holders would be due their share. The details of the write down and the appreciation sharing could be tailored to different circumstances. But one way to give lenders a share of the upside would be to pay back some of the write down if the house is later sold.

Then he is asking to the authors:

I can see the attraction of these ideas, but I have two questions:

1. Would a law giving homeowners the right to write down their mortgages in exchange for equity attract so many homeowners that financial institutions would suffer even bigger hits than they already have? As these authors note, foreclosure is unpleasant for everyone. But because it is so unpleasant, some homeowners who are underwater on their mortgages keep paying them anyway. If we give them a better alternative, why would they?
2. If Congress were to pass a law allowing homeowners to rewrite their mortgage contracts, and lenders suffered losses as a result, what would the constitutional implications be? The fifth amendment says "nor shall private property be taken for public use, without just compensation." Could lenders get "just compensation" for losses that resulted because Congress crammed down an equity-for-debt swap? If so, would this be the best use of taxpayer funds?

Property ownership, means freedom, indefeasible right of personal ownership, especially home, people thinking about not only their generation to live and but also their children’. That is why economy is must right to solve this kind of problems, with its prosperity there would be no heartbrokenness like this. So especially economists who know all of this, have obligation to act and let public know unbiased way if they can. Why people bit nice to each other? Power yes people blinded by power, as economists, can imagine not only America but whole civilizations going to backward if world biggest economy elect a president who is promoting protectionism.

Update: I saw his spelling mistake before he correct nice to know he actully can...