I'm no economist or anything close to it, but some of my thoughts:
- driving down home prices to the extent possible via an action such as this will create more underwater conditions, possibly more than we have now. What do those of us that are currently paying above-water mortgages do when in a matter of a few months we find our mortgages are now underwater?
- what about recent retirees (or those close to becoming one) that have always planned on selling their homes, downsizing to more affordable housing in a more affordable area of the country and subsidizing their retirements off of the net proceeds? Sure one can argue that "investing" in your primary residence with the hope of reaping a windfall profit is a bad investment concept, but millions upon millions of people have done exactly that.
- what happens if you can't even sell your home in a market in a rapid freefall? And maybe you can't even afford to stay current on the increasing property taxes? (And don't forget about all of the new EPA regulations that will require "certification" of your house before you can sell it (again, some houses will cost more to get "certified" than the amount of equity the home owner planned to walk away with, this gets even worse as values are driven downward).)
- what happens to the job market when millions of people that planned to "retire" in the next few years (in part based on selling their home and moving to a more affordable area) realize that they can not afford to retire and need to keep working (if their companies will keep them on), there go a lot of potential job openings for younger workers...
- what happens to the private property rights of those forced into accepting some form of government "forgiveness" of their debts, who will hold title to the property?
- what are the effects on trust in contracts and long-term obligations (even beyond housing)?
- what about the impact of the fact that the "government" (i.e., us) has NO MONEY to pay for such a fiasco? That means that the Fed will be injecting more fiat money into the economy, long-term federal debt increases (but hey what do several hundred billion more dollars mean when we are already at the level of trillions that are completely unsustainable?), and taxes will be driven up even higher...
I am sure that there are many many more that can be listed, these are just a few initial thoughts. Prepare.
There are plenty of people in California that fall in that category. Never planned to live here permanently. Put hour flame retardant suit on because you are about to get it heavy.