justaworker2 wrote:What I am reading here is so typically American.....fix it and fix it now....and don't care about the consequences of doing the wrong thing. We do not want to really understand how we got here or really care or demand retribution...we just want someone else to do it for us....
The dilemma of this posting thread is it really asks two distinct questions.
First, whether or not there is a good strategy or scheme to stop the decline in home prices. The second, whether from a policy aspect the country should even go down that path.
Regarding the first question, I provided a plan for the fed gvt buying up foreclosure homes. Not much in responses whether this tool would work or not, as most responses focused on the policy question. Kept hearing one thing:
why do you assume that bailing out homeowners will...
One can only reiterate that my plan had not one dime going to homeowners. Kinda like saying the gvt. bailed out Lehman Bros. shareholders, (who have about zero left).
Regarding the second question,
should this be the policy path to take, the vast majority of responses are against this, perhaps summarized by a few selected quotes:
Unless you want an essay on "what" the problem is I wont get into it, but it's not falling home prices.
so typically American.....fix it and fix it now....and don't care about the consequences of doing the wrong thing.
The only people that say that falling houses prices are the problem are those that have a vested interest in having prices staying up, like the NAR.
Second, of course a ponzi scheme will fall apart if someone eventually wises up and stops paying. But that isn't a reason to continue the ponzi scheme. The damage has already been done.
If you're planning on staying in your house for a decade or so, then why care?
The market is now providing the solution. Personally, I like it. Keep it going another year or two and my kids will be able to buy a first home they can afford.
Well, I'll put my head on the chopping block and provide an alternate viewpoint of why you should care about falling home prices.
We have all seen films of airplanes in a steep dive, spiraling downward, sometimes not pulling themselves out, hitting the ground. There's even a worse case...submarines. If a submarine gets itself into too steep a dive, it CANNOT pull out. It hits the ocean floor, or if the waters too deep, it is crushed by the increasing pressure. So regardless of incriminations, who caused it, reasons why, the sub commander must, at all costs, avoid getting into such a downward spiral.
So I submit that the country faces a bigger issue or concern, than "fixing the bad credit situation." Heck, that's easy, let the bankruptcy courts handle it completely, let those bad borrowers wither on the vine, it'll work itself out. But what about the economic effects, going forward?
Talk is abuzz about "depression." Herein lies the concern. A study of past depressions seems to show that those in power who "did nothing" got themselves into an economic downward spiral from which they could not recover. Oh, let the market forces work, was the mantra.
Furthermore, that economic spiral was mostly attributed to falling prices, yes, deflation. So much so that economists want to have a buffer, say prices rising at 2% a year, to make sure deflation is avoided. I submit that what could take the economic engine to the bottom of the ocean is deflation, and forward going, avoiding it has to be "job one" of various people in power.
And if we get into deflation now, the biggest contributors will be the great credit unwind, falling stock prices, and declining home prices. Let's focus on home prices. The past decade, Americans saved zero percent. Much added spending came in the form of home equity loans. Not only are declining home prices affecting this amount, but many banks are not lending HELOCs anyway.
Secondly, some say, let’s have home prices come way down so I can buy one (cheaply). Well, if prices come way down, homebuilders can’t compete. The homebuilding industry greatly shrinks. Think that won’t have long term consequences. Existing homeowners raising prices as no competition from homebuilders.
And yes, why don’t construction workers take pay cuts to become competitive? Yes, but therein is the deflationary spiral. Those workers now have lesser wages to support the economy, including buying homes.
And with the deflation comes bosses calling employees into their office, saying, gee John, but times are so tough, that with falling prices, we need to either let you go, or take a 10% pay cut to stay. Oh, the spiral is never ending.
Why, the simple hunkering down effect, and the loss of wealth effect, alone is severe with falling home prices. My wife and I are hunkering down, and we don’t need to.
Couple all this with the loss of stock market savings, and the shrinking money due to the credit unwind, and deflationary forces abound. Senior citizens delaying retirement. Can only get 1% safely on their bonds. Prices keep falling.
So here’s the deal. I submit all of you have a stake, going forward, in mitigating the severity of the upcoming poor economic environment, and that stabilizing home prices could be a primary factor. And if we spiral downward, the ocean depths are pretty deep because the entire world seems to be facing the same “falling prices” dilemma. Standby.
Retired at 48
