We first discussed the possibility of state and local governments using eminent domain to 'save us' from further housing issues a year ago but now the NY Fed has gone one step further with an academic-based justification for why this process is not a "zero-sum-game" and will render all stakeholders better off. We can hear echoes of "trust us" in this commentary as the authors explain how multiple valuation methods will be used to ascertain "fair-value" - which has always worked so well in the past - and that we have "little to fear" from the resultant long-term contraction in liquidity or credit as bubbles can only inflate during times of easy credit availability (and that will never happen!)

Paying for all this? Don't worry - resources to fund purchases of loans/liens can be raised from public, private sources or a combination of the two.

It seems to us that MBS holders will not be happy, consumers hurt as mortgage costs would rise (this 'risk' has to be priced in), and taxpayers unhappy as this is yet another transfer payment scheme to bailout underwater loans.

Oh and if that didn't worry you - remember back just a few short hours ago when we discussed the French socialist government's efforts at 'helping'!!











Some headlines from the report that caught our eye (via Bloomberg):

Underwater homeowners therefore are not to blame for current situation Moral hazard can be prevented as it is “easy to formulate” criteria that doesn’t encourage strategic defaults “Little need to fear” resultant long-term contraction in liquidity or credit as bubbles can only inflate during times of easy credit availability; we want “credit-caution” going forward Eminent domain proceedings are not “zero sum game” and will render all stakeholders better off Political authorities can use eminent domain to seize second-liens, too, “if need be”; can be used to “bring recalcitrant” creditors to the table

Via The NY Fed: