Bailouts; fragile confidence; falling stock markets; talking heads; criticism; applause; more criticism; Republicans; Democrats; Latvia’s economy collapsed; Citibank stock down to less than $3; fear; nationalizations; hope; speeches; uncertainty; and more bailouts. What is going on? How can we get out of this mess?

What is going on is exactly what everyone is trying to figure out. There is so much uncertainty out there that I would not be surprised if people started asking astrologists what will happen to their pensions and savings. So much effort is being put into reversing this crisis, yet things still look gloomy.

As I was writing my book and comparing the robustness of property markets and property rights systems in the United States and other countries I realized early on that the United States has a rather weak system for defining and stabilizing property rights. In such a context speculation is almost certain and of course can lead to destabilizing prices and push the entire market beyond its limits.

I strongly believe that the key challenge in our current crisis is to stabilize home and real estate prices. But no one seems to be attacking it head on.

Unfortunately, the weak U.S. property rights system is complemented with some private-sector risk management tools that seem only to increase the uncertainty as they muddle the supply. I talked about this topic 2 days ago on Radio http://www.archive.org/details/RadioInterviewFebruary242009

What needs to happen to stabilize home prices now and for the future? The first step is to reverse the trend toward property being a speculative entity. That will require consolidating in a standardized manner all information about the asset in a single property registry system. We can get the information to begin from the existing (less than ineffective) public registries and from title insurance companies.
This would be a better approach than one that concentrates only on the effects of the crisis, rather than the impacts. Instead of a focus on nationalizing the banking sector, let’s take the more effective – and less expensive – route of undertaking a deep reform of the public registry system and fix the valuation method of every home out there.

You may be interested in reading the following articles:

Nationalizing America’s Banks  (The Economist February 26)

The risks of a bust-up in Europe (The Economist February 26)

No “magic bullet” in Obama housing relief plan.  ( February 18)