Citigroup executive Robert Rubin says proposals by the top three presidential candidates and others to attempt to fix the housing and credit crises sound sensible and could be effective.
The former Treasury secretary for President Clinton tells Robert Siegel the key is "to sort through them and sort through them quickly, make decisions quickly and act quickly."
At the center of the economic downturn, says Rubin, is the decline in home prices, which he calls "exceedingly significant." Consumption over the past decade, he says, was largely driven by borrowing against home values, adding "when home prices fall people feel less affluent and that can affect the psychology of investors."
With regard to the negative equity situation that many homeowners face, Rubin looks for banks to write-down mortgages to levels commensurate with the real value of the homes. He says it's a "financially better solution" for banks than foreclosing. By most estimates, lenders lose 20 percent to 25 percent of the value of houses through the foreclosure process alone.
Renegotiated mortgages would permit families to remain in their homes and cut bank losses to a degree. Rubin says he suspects some public funds would probably be necessary, in the form of subsidies for homeowners, but not for lenders, which Rubin says should suffer a loss.
In the short run, Rubin has three general recommendations: Continuing to do what's sensible to stimulate the economy, increasing the availability of new mortgages for people who want to buy homes and creating measures to address the large numbers of troubled mortgages over the next year or two.