In his Sunday News column “When a house is just a home”, Gil Smart observes:
“’So why try to prop up prices any longer with federal programs?’ asked CNNMoney.com, rhetorically, earlier this month. ‘Is it time to simply let prices free fall, clearing the way for a genuine correction of the real estate market?’
“But that general correction, some analysts fear, could mean a further 30 percent drop in home prices. That would be devastating to both homeowners and the broader economy. Small wonder Obama wants to prevent this.”
More particularly, it would bankrupt most of our financial institutions and almost unquestionably put us in a depression that would make the 1930’s seem like good times.
So the hands of the Obama Administration are tied. It must prop up the housing market and the banks and hope that a slower but eventual recovery will finally return home value to the current artificial market level.
In the best seller “Washington Rules”, author Andrew J. Bacevich observes “No president starts with a clean state. Upon entering the Oval Office each confronts an imposing and often problematic inheritance. Constraints, some foreign, others domestic, limit his freedom of action. Struggling to control (or even understand) that inheritance and to elude those constraints, presidents fail at least as often as they succeed.”
Thus President Barrack Obama has been hobbled by the excesses of the Clinton and the subsequent Bush administration. No question is probably discussed more in the inner circles of the Federal Reserve, the Treasury Department, other agencies and the White House than what can be done to stabilize the housing market. To date, no solution has been proferred.
Here is one suggestion, albeit it too might prove dangerous. Most mortgages were sold by their originators to be securitize, that is “sliced and diced” and sold in layers of risk on the stock exchanges. They are serviced by companies that simply collect the money and perform the paper work, but who have no authority to change the balances, terms or conditions.
Federal legislation could authorize the service organizations to negotiate with mortgage holders rather than to suffer non-payment or to foreclose. The danger here is that the adjustments would be so quick and so great as to bring about a severe crash in housing value and soon thereafter the national economy.
The government’s totally bipartisan effort (TARP) to save the banks from a situation which they alone created used a massive 700 billion dollars and it worked. They were saved. The government’s program to save people threatened with foreclosure, due to the same exact financial situation that threatened the banks, has not spent 50 billion and is a dismal failure. This should tell us something about our government, including who owns it.
No real jobs program, no real foreclosure assistance. It’s a free market for the poor and socialism for the wealthy. They are too big to fail, we are too small not to.
The real joke is that any anger about this will, in November, put ever more of the foxes in the hen house who will then tell us there are just too many of us chickens to be saved, and, that our actual, and natural, chicken destiny is to dutifully lay our eggs for the fox family breakfast offerings until retirement whence we shall have the graduated privilege of being on their dinner menu.
Who would be hurt more by more foreclosures – troubled homeowners or 3rd party investors? Most of the at risk homeowners never would have qualified for mortgages under traditional lending practices, so they return to rental housing minus some fees — most paid little or no downpayment. 3rd party investors can sue the mortgage originators, as they should, for fraudulent mortgage originations. The government couldn’t be bothered to regulate the industry before, why should they get involved now?