It is always welcome to see a commentator come on side and explain what is really wrong and also point out that the solution must be through rewriting the mortgage rules to empower the consumer to do the actual heavy lifting needed to bail out the economy. I said exactly all this back in the middle of the collapse back in 2008 and early 2009. We have wasted two years and are likely to waste a full decade considering quality of political leadership currently available.
The original article is here:
Googling this blog using ‘mortgages’ (see widget to right) will get you over thirty separate posts on the economy in this blog which should show you that I at least have never taken my eye of the ball.
In late 2008 we strapped on a life preserver to the US
It’s the Mortgages, Stupid
Posted on Sep 7, 2010
This week’s proposals by the Obama administration to deal with the persistent economic crisis will be, as with previous plans that involved trillions of taxpayer dollars, little more than salt in the wounds. Once again the strategy is to stimulate the economy by funding projects and tax cuts while ignoring the root cause of the problem: a housing foreclosure meltdown that has chilled the spending of a majority of American consumers.
With 11 million homeowners underwater on their mortgages and 3 million more already foreclosed, we have to assume, given the average household size, that some 40 million Americans are feeling mighty strapped. The numbers grow to an overwhelming majority when you take into account the distress of all homeowners, who have watched the value of the family nest egg dwindle even if they substantially paid down or paid off their mortgage debt. And this very widespread feeling of being suddenly much poorer is a nationwide scourge that has dramatically cut the appetite for consumption that drives the economy.
That fact is recognized even by the very business people who are supposed to be inspired to new investment and hiring by Barack Obama’s proposal on Wednesday of an accelerated tax break on business investments. As William Dunkelberg, chief economist for the National Federation of Independent Business, told The Wall Street Journal, “If you give a small business guy $20,000 he’ll say, ‘I could buy a delivery truck but I have nobody to deliver to.’ ” Although Dunkelberg’s members would be happy with a tax cut, he said the most important help would be to “finally address the most important person in the economy—the consumer.”
The anger of wannabe consumers who no longer feel they have the wherewithal to feed that most important of American passions is what is fueling the widespread rage against elected officials. The Democrats, being the party in power, are the most popular target, but they are in deep denial when they blame their pending electoral plight on the demagoguery of their Republican opponents.
Of course the Republicans and their deep-pocket sponsors are being outrageous hypocrites when they blame others for the horrid consequences of their decades of lobbying for radical financial deregulation. Ever since the “Reagan Revolution,” their mantra has been “get government off the back of big business,” and once that was accomplished and Wall Street crumbled under the weight of its own greed, they supported George W. Bush in bailing out the knaves.
But the fault is clearly bipartisan. It was Bill Clinton who signed off on the radical deregulation legislation, and it is Obama who continued Bush’s practice of bailing out the bankers while ignoring the anguish their toxic mortgage packages caused the rest of us. That is why the Fed has gifted the banks with interest-free money to finance their new acquisitions while making them whole again by purchasing more than $2 trillion in toxic mortgage-backed securities and other dubious assets. Not surprisingly, the bankers pocketed that enormous gift from the taxpayers but did precious little in return by way of lending and investment that would bring down unemployment.
Which brings us to the current disastrous moment. The president who inherited a deep recession that began 13 months before he took office is now viewed as a big “socialist” spender because he followed in Bush’s footsteps, blackmailed by the notion that the entire system would go kaput if the bankers were not accommodated. The amount of money now available for him to spend without freaking everyone out about an increase in the debt is paltry. The commitment of $50 billion to a national infrastructure program to be phased in over the next decade would prove to be too little too late. It is chump change compared with the $350 billion in loans and guarantees to one bank alone, Citigroup, which still cannot stand steadily on its own feet.
There is only one course left for Obama, and it is to do now what he should have done at the start of his term: abandon the hope that banks will voluntarily aid desperate homeowners and instead push for new government regulations and changes in the bankruptcy law to force the banks to make deals to keep people in their homes. There is precious little else to talk about, for if the housing market—the bedrock of not only the American dream but, more important, the financial security of a nation of consumers—is not restored, we are in for one long, dreary period of economic stagnation at best, or a severe downturn and a society in dangerous turmoil.
I could be wrong, But I think that I have a free market solution to the current "housing situation". Feel free to point to any errors in my axioms or logic.
ReplyDeleteExpect to spend an hour or so slogging through.
www.dnusbaum.com/fix.html