State-Owned Banks as a Way to Rebuild the Housing and Real Estate Markets

Bruce B. Cahan
Stanford University

The financial literacy of America has improved markedly, nearly to college level, as a result of the global recession that started in 2007. What about state-owned banks, is the time ripe to explore that part of economic history?

Americans, now economists, can fill a green chalkboard from left to right, with the familiar logic of our situation:

• our housing bubble, pumped up by loose underwriting and shadow finance, burst,
• this caused Americans’ perceived real estate wealth to evaporate,
• consumers reduced spending,
• lacking demand, companies reduced employment, profitability and investments,
• the economic uncertainty increased the volatility of the stock markets,
• this caused investors to flood into the bond markets, pushing interest rates to low levels, near zero, (aided by Federal Reserve monetary policy interventions),
• all of which now threatens a cycle or syndrome of deflation and recession.