Even today, we're building new homes at an annual rate of 500,000. Builders on average earn about $50,000 a home in gross profit. So why not pay them not to build? If the government gave the builders a subsidy of $50,000 to not build (up to 500,000 homes) it would allow the builders to maintain their infrastructure without actually having to build anything. Additionally, the government could punish builders who build anyway by taxing new homes $50,000.

This would surely hurt employment in the building trade, but it would only be needed for 12 to 18 months or so. And the most it would cost would be $25 billion - a lot less than $700 billion.

The results would be immediate. The dreaded inventory of homes for sale would decrease dramatically. The law of supply and demand would cause housing prices would stabilize and thus end the free fall in bank balance sheets as well as personal balance sheets. Thus confidence in the credit markets would return and employment would gradually uptick. After 12 to 18 months, building could resume, but would hopefully be constrained by significantly better lending practices than the craziness we've had in the past.

This is a relatively simple idea. It will, however, take courage to enact. The building trade -- which includes companies like Pulte (PHM), Ryland (RYL), Toll Brothers (TOL), and KB Homes (KBH), among others -- won't like it.

It's hard medicine - but it will work, and won't put our future generations into hock. Isn't that more important?