Let It All Fall Down

They put all their chips on black, and it kept coming up red. Maybe they should have made banks mark mortgages at their true value? But that would have made the bankers cry, so it was never a real option.

They might have made the HAMP program work instead of using it as PR cover, too. But oh well!

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

The further the market descends, however, the more miserable one group — important both politically and economically — will be: the tens of millions of homeowners who have already seen their home values drop an average of 30 percent.

The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.

Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”

Go read the whole thing, about the crisis of their own making. Pouring money down a hole is almost never a good strategy.

3 thoughts on “Let It All Fall Down

  1. The market isn’t coming back and the buyers won’t be pouring in until ordinary people have money again to use for things like “new” housing (new to them, that is). As long as people cannot find the money to do things, like buy a house or replace breaking furniture or the once-in-a-while books, CD, etc. no market is coming back. People need economic stability in order to plan major purchases and indulge minor ones. With unemployment still where it is and people insecure in their jobs, ain’t nothing going to happen.

    Paris Hilton can go to all the parties she wants, buy all the new clothes she wants, have homes in multiple areas but she is still one person and some point she isn’t increasing economic activity. The economy needs more people doing the buying.

  2. Tsk,tsk,tsk ——-poor Obama Administration, can’t figure out what to do with the housing market. Ya didn’t take bold, decisive action in the first place to get folks back to work, and now you face the prospect of watching this happen:
    “The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.”

  3. open left had an interesting take on this the other day:

    When Barack Obama made his famous remarks about Ronald Reagan being transformational, it was misinterpreted as being political, an attempt to reach out to the other side. It actually was, as some feared, philosophical. It really did mean, sincerely, that except around the edges, he thought that Reaganism-Thatcherism was irreversible. Just as Bill Clinton does, just as Tony Blair does.

    The Third-Wayers are serious about this. Seriously deluded, perhaps, but dead serious. There was never an attempt to triangulate the “independent center”, those who still believed in Reaganism but were distressed by the partisan cultural meanness. That was sincere. Those who were played were the Democratic base. They would have to be satisfied with corporate-style knockoffs of social-democratic ideas (health care being the most obvious example). Labor reformers would have to be mollified with “we don’t have 60 votes”. And symbolic gestures devoid of content like inviting Pete Seeger to the White House.

    Why didn’t this work? Why are the Dems SO wounded by a bad economy? A better economy was absolutely crucial to the Third Way plan. They didn’t think it would get this bad. If it hadn’t gotten this bad, they might have been able to pull it off. People would be working, the craziness wouldn’t have gained so much traction, people would have been able to laugh at Sarah Palin, Dems would have been fat and happy. But that way depended on bubble economics, which the neolibs mistaken thought was permanent. They may not even believe they depend on bubble economics, they may even delude themselves that they truly stand in the middle. But when push comes to shove, they never move to the left.

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