We may need to rebuild Las Vegas — literally

By Brian Greenspun (contact)

Sunday, Nov. 6, 2011 | 2 a.m.

The good news is creeping back into Las Vegas. So why is everyone still so gloomy?

Like everyone else, I am always heartened when MGM Resorts International and others report that they think Las Vegas is starting to bounce back, however slowly that might be happening. MGM’s numbers show tourism is rebounding, room rates are inching up and occupancy rates are rising.

That kind of news is so welcome amid the kind of news we have had to live with every day for the past three years. It is, however, just one indicator that this city, which fell victim to a most depressing recession that has the entire country in an economic tailspin, may be starting to come back.

Another indicator of economic health and vitality was the subject of a meaningful discussion I had with one of this city’s more well-known hotel owners this past week. I am not going to identify him because his name is not important to the story. What he says, how he feels and the observations he makes are. Besides, he is a longtime Republican who, if his views were known, would be shunned by those who control his political party. It is not my place to bring such good fortune upon him.

His question, in a discussion about the future, was “How do we fix this economy, specifically the housing crisis in Las Vegas, because this is really bad for our people.”

I know, I know, that doesn’t sound like a modern Republican talking. It sounds more like the Republican of yesteryear who cared about fiscal responsibility but also cared, often more than his Democratic colleagues, about the growth of a strong and vibrant middle class and, frankly, for those at the bottom of the economic ladder. Yep, that’s my friend!

In any event, the discussion went like this: My folks come to work every day, and I fear that the best time they have in their lives is when they are working because when they go home, there are bills they cannot pay, children who need help they cannot give, shoes they cannot buy and a future they can no longer see for themselves and their families.

I know, I know, it doesn’t sound like a modern Republican talking.

He followed that concern with his overarching worry: What are we going to do about the housing crisis that is at the root of this malaise? People are so far underwater in their homes that they are either losing them, or are in so deep they can never get out and are watching their values slide every day. And it is not their fault.

All that is true. Save for a few who overextended themselves at the worst time in modern history, the overwhelming majority of homeowners in Las Vegas are underwater and all they did is what everyone told them to do — their government, their bankers, their personal advisers — they bought homes by signing mortgages.

Today, those mortgages are worth more than the equity in the homes because everything has dropped so far in value. And, each time a foreclosure or short sale happens down the block or across the street, the value of homes in the neighborhood drops even more.

And that, my friend says, causes a most depressing state of mind. And that is the way his employees come to work. How can he possibly expect them to smile, and mean it, when a guest comes to town? If his team members are in a bad mood all day, his profits, such as they are, will also be depressed.

Finally, he is talking like a Republican!

I told him I had been hearing bits and pieces of what could be a very bold idea. So I improvised on the way through it.

We bailed out the banks and Wall Street, which most people will agree, grudgingly, averted a far worse financial calamity. So why not bail out real people, the folks who live and work in neighborhoods across America? And why not start in Las Vegas?

The federal government — yes, it has to do this because it is the only entity that can print the money — can create a program in which every bank that owns a mortgage on an underwater home would mark that mortgage to market. For example: a home-owner who bought a home for $300,000 and had a $240,000 mortgage on it. In today’s world, that home is now worth $150,000, and the mortgage is still hovering around $240,000.

Under this plan, the bank would lower the mortgage to $150,000, reset the interest rate to market, and both bank and homeowner would move on. The bank would have a mortgage secured by a home of appropriate value — removing the toxic asset from its balance sheet — and the homeowner would have a chance at a future. Happiness all around.

How that is paid for I will leave to the experts, but I am confident the folks who figured out how to save and grow the car companies can figure out how to save a few million Americans from financial oblivion.

The second part of the plan, especially for Las Vegas, is bolder yet. We have thousands of empty houses in Las Vegas because they haven’t been sold and can’t be rented. And the prospects for growth in the next few years are so murky that we can’t project when there will be enough new residents to use up the supply adding to depressed home values.

Here is where the government comes in, again. It creates an incentive for owners of empty homes — where it makes geographic sense — to raze them. All of them!

The result: Those who owned the homes would own the land where they once stood, land that will be worth substantial money when Las Vegas returns to a growth model, albeit a much saner one than the past 60 years.

With an equilibrium reached immediately rather than over a decade or more, the law of supply and demand would be engaged. Home prices would start to rise, and people in homes without equity would soon see that equity start to grow again.

And, here is the kicker. As Las Vegas starts to grow again, whenever that is, those who own the land will be able to hire — you guessed it — construction workers to build homes for the people moving to town.

Everybody makes money! My Republican friend liked that idea, too.

I watched him as the idea sank in. The plan would require the federal government’s help, which he would normally be against. But, he agreed, if President Barack Obama and Sen. Harry Reid could pull off this kind of pilot program — so that the rest of the country could avail itself of the benefits if it worked — it would really help Las Vegas. His employees would come to work without that depressing pall that hangs over them, which would be good for them — and for business.

It was an idea, he said, he would support, because it is far better than doing nothing. And doing nothing is just plain wrong and dangerous for Las Vegas. That’s what he said.

In the end, my friend did not sound like a Republican or a Democrat. He sounded like an American capitalist and a Nevadan. He sounded sane and, frankly, like the kind of person this city needs to help it survive.