The Genius has some ideas to help with the housing problem!
But they’re all classic early Obama Administration “don’t rock the boat too much or we’ll get blamed” ideas.
Rather than being truly radical in dealing with a disaster, half measures are adopted which only make everyone angrier.
On housing, there’s a need for reality:
1) Prices are still at least 10-15% too high relative to the 100 year trend. Any policy that doesn’t start with an acknowledgement of that fact is not a serious policy.
2) Banks are not being forced to mark their bad loans to market. This creates the impression that all is well, or will be if we wait another 10 years, but the fact remains that the banks are largely bust and sitting on piles of cash. With little demand in the economy, and little incentive to engage in lending, the situation only gets worse.
3) The federal government isn’t using its leverage to get meaningful changes across. Like it or not, the GSE’s are 95% of the mortgage market now. They should be engaging in massive refinancing, cramdown, i.e. principal reductions, and buying up lots of bad loans from the banks (or the Fed should substantially increase its balance sheet and do so). So long as this doesn’t happen, the GSEs are little more than the even poorer sisters of the banks.
4) There should also be greater promotion of renting and greater promotion of housing for the unemployed. We need to stop subsidizing home ownership over a 10-20 year period. Alas, if subsidies go, prices are likely to fall further, but that makes home ownership truly affordable.
5) Get the Fed to give everyone some free money to encourage spending and get the Treasury to print some money and start hiring people.
Gorilla says: “A house may be a home, but it’s not a good investment!”