Robert Shiller is possibly the most eminent housing economist today...but that doesn't mean we need to agree with him. In the article to which we have linked below, he proposes that the federal government mandate that lenders take a haircut on mortgages so that underwater homeowners can stay in their homes. We believe that this idea creates perverse incentives, penalizes those who have been prudent, and takes money away from entrepreneurs who are solving the housing crisis one foreclosure at a time, while hiring construction workers who need jobs more than most groups. If we use eminent domain to cut home mortgages by edict, there will be unacceptable unintended consequences, namely: (1) Homeowners who were prudent and didn't take huge cash-out refinance mortgages during the boom will be penalized relative to those who used their homes as an ATM machine. (2) Just like Wall Street banks, individuals will receive the message that we live in a "heads I win, tails you lose" economy. They (we) will learn to maximize self interest and ignore risk. (3) Small businesses that buy REOs and hire workers to renovate them will be harmed.