Photo: Wikimedia Commons
Hedge fund legend Don Brownstein made millions by correctly betting on the crash of the sub-prime mortgage market, and now he’s got a fix for the foreclosure crisis hammering towns (and banks) around the country.Last year Brownstein and his co-manager at Structured Portfolio Management William Mok, earned returns of +49.5% in their $1.1 billion Structured Servicing Holdings LP fund. The fund returned 185% in 2007.
This morning at an event hosted by Bloomberg Markets Magazine, for a series called Movers and Shakers, Brownstein explained how to fix the housing market.
To him, it’s quite simple.
“Let’s say there’s 8 million households that are about to be foreclosed on. Those households will then move to another 8 million houses, at a cost” — both for the homeowner and the mortgage servicer.
(This is essentially the same as Whitney Tilson’s thesis about foreclosure-gate. Read more here.)
In a sense we are victimizing ourselves by forcing that outcome. We need to say: look, we made a big mistake. Don’t spend any more money on that mistake. Why not just let these people be renters. Let them stay in their houses, as tenants. Don’t move them. Stop doing that. It doesn’t make any sense.
Banks get no utility from owning a house. Jamie Dimon doesn’t sleep in one of those foreclosed-upon houses. He doesn’t use their bathroom factilities. He has his own house.
A few years ago, Brownstein spoke at the Milken Institute investor conference. He was about to declare his solution to the sub-prime mortgage crisis and housing glut: knock them all down. Before he could say it, someone in the audience suddenly yelled, “Burn them down!” Everyone cheered.
Brownstein’s thesis has changed now. He says keep the houses, but ensure those who can’t afford them stay there as renters.
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