First they say that to fix the economy you have to stabilize house prices and get them to go back up again.. Why? How is it that insuring that a home that was affordable to someone with a decent job in 1998 and was valued at 120K in 98 and during the bubble it hit 800K a good thing? How is inflating the cost of housing out of the reach of the middle class good for the economy? Why not let housing prices correct to historical affordable levels a bad thing, I thought that is a good thing? It means homes are affordable without scam loans and all kinds of trickery. Housing deflation means in my book that people will be able to buy a home at a nominal fair historically inflation adjusted price and that means they have more disposable income to spend in the economy for goods and services. A home should not consume 80% of someone's income. Another note, they want banks to loan more to overleveraged consumers who bought overpriced homes that the government want to keep overpriced. How is loaning more money going to help, when they reach their limits again all it just means is a bigger leverage for consumers and more losses. What happened to what is called a free market economy? I remember there used to be this thing called supply/demand curves and price adjustments that kept a fair equilibrium in the market. Anyhow this makes no sense? Why keep house prices inflated artificially?
It makes sense in the fact that they need to make 65 trillion dollars worth of credit default swaps worthless so that all the banks dont go under.
You are right with what you said, but the gov't thinks our banking system is a little more important then getting our housing mkt back to fair value...
the problem is that banks are extremely leveraged on various mortgages so one foreclosure with a loss of $100K on the initial loan value, costs the bank for example $4M --- if you assume that this crisis was engineered you can then with a high degree of certainty assume that inflation was a desired outcome --- here is another question, why create inflation through injection of money into financial systems why not through increase in income levels, the reason is obvious, but I just wanted to restate the question as it sheds light on the benefits of inflation for some people
Free markets right themselves... As long as the rules of the game are consistent and enforced. Government oversight, regulatory and enforcement actions are applauded. Government Market Manipulation and interference is a crime. Let the fat cats fail so more agile and competitive players may emerge. AIG just pissed through $100B of bailout $ for our tax payer stake of 80% equity worth approx $5B at this moment in time. With the government in the game urgency to settle matters have been stalled and turned into a wait for our handout game.
If a person bought a house for $300,000 and the house is now worth $200,000 and the mortgage they took out just adjusted to a 14% rate and over the life of the loan the house will cost them $500,000......they will walk away and add to the problems. Soooooooooooo gov't doesn't want this to happen. But it is to late.