The housing market has now entered the feared “double dip,” after rebounding slightly in the past few quarters.
Liberal pundits and media are furiously spinning the seemingly unending stream of bad economic indicators as “unexpected.” Heck, Glenn Reynolds at Instapundit has made an internet meme of “anything bad that happens during Obama’s administration = unexpected.
Despite vigorous protests otherwise, the continued tanking of the housing market, as well as plummeting consumer confidence and stubbornly high unemployment, should be as expected as day following night.
The policy of the Obama Administration, from day one, has been to use government intervention (whether monetary or regulatory) to “fix” all aspects of our economy. When the Democrats’ Keynesian stimulus programs failed, the Administration’s response was trillion dollar stimulus wasn’t big enough. When the banks wobbled, the solution was to create new regulations. When foreclosures loomed, Obama intervened to stop them.
Let’s grant President Obama and the Democrats the benefit of the doubt for a moment. Let’s assume for the sake of argument two things: (1) Democrats’ intent is to cushion individuals from market forces and (2) Democrats actually believe Keynesian policies work, and aren’t just cynically using them as an excuse to grab and consolidate power.
Even granting those two premises, everything the Democrats have done regarding the housing downturn could not have been better planned to extend the crisis and prolong consumer pain.
As noted repeatedly, in order for the housing market to rebound, it must first hit bottom. The stimulus and foreclosure regulations are designed to prevent the market from hitting bottom. These responses are designed to support prices artificially, whether by increasing the money supply to inflate away losses or by increasing regulations to strong-arm banks to uneconomically restructure debt obligations.
In order for the market in housing to settle, the losses must be realized at both the consumer and the banking levels. Any action that prevents recognition of these losses only creates investor uncertainty, leading to a chronically sick housing and banking sector.
Democrats are playing up the “we’re for the little guy” angle. Yet each and every action the Democrats have taken costs the little guy. If housing prices don’t reach bottom and recover, many can’t afford to move. If banks don’t know what the rules are, they won’t lend. If houses aren’t selling, and banks aren’t lending, consumers are scared. Couple that with inflationary pressures on food and energy (both also primarily Democrats’ fault — think ethanol subsidies and green energy/environmentalism garbage), and you’ve got the makings of a full on Lost Decade.
If the government wants to fix the housing problem, it should take the money it’s spending on forced mortgage modifications, homebuyer tax breaks and various other stimulus programs, and use it to purchase all bank’s portfolios of real estate owned. Once purchased, the government should raze the structures and auction the vacant lots.
Addressing the cause of housing troubles (oversupply) rather than the effect (whiny voters who irresponsibly overbought and whiny banks who irresponsibly overlent) may actually do some good, regardless of what one thinks of government intervention.
‘Puter will leave for another day his thoughts on forcing banks to scrub their portfolios of bad loans by setting minimum portfolio performances thresholds, then having the FDIC liquidate noncomplying assets in owner-blind absolute auctions. The FDIC would then use the proceeds garnered, and perhaps some taxpayer dollars to recapitalize the banks.
Liquidate the losses, and growth will follow.