18 August 2007

Mark Cuban's idea

Everyone is now discussing subprime mortgages. While the excitement on Wall Street has moved well past that specific catalyst, it clearly WAS the catalyst, and deserving of some meditation.

One of the 'everybodies' is Mark Cuban, a billionaire, the owner of an HDTV cable network, and never one to suppress his ideas.

Cuban's take-away? Home owners should be able to sell some percentage of equity in their home, have an "initial public offering" in their home the way a business when its ready to go public. The point would be the same in both cases, to spread and thus manage the risk.

Cuban has evidently given some thought to the possible creation of an exchange for homes, and expounded on the rules by which that exchange could be run on his own blog.

There are lots of practical difficulties with the plan, and no likelihood of a liquid market in, say, 432 East Maple Street, Houston. There's nothing wrong with it, regarded simply as a provocative market-theoretical thought experiment, though. And there are other ways that still-nascent markets might help diffuse risk. There are indexes that track residential housing property prices, and there is a market for derivatives constructed on those indexes, which may if it develops properly yet have the kind of soothing consequences Cuban would like for his brainstorm.


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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.