Here is a little diagram I drew to point out the chain of events that is occurring in our current recession. I marked "falling housing prices" as being caused by the free market to emphasize that it is the natural result of high housing prices. However, in reality every item along the chain is being caused by the free market. The actions in red represent the federal government's attempts to weaken the link between falling housing prices and rising unemployment.Many people may be tempted to try to prop up high housing prices, and that is what the economic stimulus package's $8000 tax credit is attempting to do. However, last year's $7500 tax credit failed to have a noticeable effect. At best, attempting to prop up high housing prices in the near term will only make the decline last longer, which in turn will make the recession last longer. President Obama should realize that it is in his own interest to let housing prices correct as fast as possible, so prices are no longer falling when he runs for re-election in 2012.
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"President Obama should realize that it is in his own interest to let housing prices correct as fast as possible, so prices are no longer falling when he runs for re-election in 201"
ReplyDeleteHis other option is to try to hold up the prices for 4 more years. Either way, it looks bad on him....slow decline or 70% drop in price immediately. I dont know which one I would want to choose.
the mob is fickle. let prices crash now, then salvage re-election later by appearing on SNL.
ReplyDeleteit's certainly not his fault, he's being pushed around by all the old horses. too bad the young horses came up in the same stables. Obama's in desparate need of some ballsy help, some new blood in Congress that slaughters conventional wisdom over breakfast.
oh well. 1 (term) and done.
"However, in reality every item along the chain is being caused by the free market."
ReplyDelete... including what you call "high housing prices"
Incidentally, I don't think they're that 'high'. When you look at what the monthly payments are, they're far lower than they were in the late 70s/ early 80s ... far lower. Are they lower than the bargain prices that were available during the 90s ... Yes, but that's how the market works. It determines the correct price for any given time. Will recent actions assist in keeping prices where they're at? Yes, but that is good thing. The alternative is having prices fall and those not already in a house not being able to afford any house (because of unemployment, reduced savings/investments, etc.) At least by maintaining these prices, those that really are serious about buying will still have a job and still have savings/investments, and still at least be able to buy a house. ,
I think we're well past a "correction." The objective is not to keep housing prices high; the objective is rather to keep home prices from falling too far below the current level so that your job doesn't go down the tubes, too.
ReplyDeleteAllen said...
ReplyDeleteI think we're well past a "correction."
If you click on the high housing prices link in the blog post, you'll see that we are nowhere near being "well past a correction." The correction still has a long way to go.
Your diagram starts with "high housing prices". Overlooking why and how prices became "high" makes your diagram pointless.
ReplyDeleteIts like starting a biography of someone's life at their 35th birthday.
Its like starting a biography of someone's life at their 35th birthday.
ReplyDelete... and saying "they're too old ... and have to get younger!"
is the proposed $50 billion in mortgage subsidies enough to keep prices from dropping to the point where all our jobs go down the tubes?
ReplyDeleteour GDP was 70% consumer. now that we're resetting to a lower level of spending (because the house-as-ATM and debt-financed models of personal financial success have blown up), what's a more sustainable % of GDP to expect from consumer spending? i googled "historical consumer spending as % of GDP" to no avail. anyone know what it was like post-WWII?
Anonymous said...
ReplyDeleteYour diagram starts with "high housing prices". Overlooking why and how prices became "high" makes your diagram pointless.
Its like starting a biography of someone's life at their 35th birthday.
The diagram is about events that are CURRENTLY HAPPENING. It is not a timeline.
If you think biographies always start at birth, you haven't read many biographies.
"If you think biographies always start at birth, you haven't read many biographies."
ReplyDeleteYeah, that's right. Lincoln's biography started with him getting shot in the head.
FDR's started with receiving his last briefing on the Manhattan Project.
JFK's? Same as Lincoln's.
"events that are CURRENTLY HAPPENING"
Yeah, current events with no context = sound byte "journalism".
You get points for your attempted defense. But you fail.
Anonymous said...
ReplyDeleteYeah, that's right. Lincoln's biography started with him getting shot in the head.
FDR's started with receiving his last briefing on the Manhattan Project.
You can exaggerate all you want, but it's still obvious you're talking about biographies without having read many (any?).
Sorry, but you don't need to know why the housing bubble got so big to understand how the bubble is causing the current economic problems. And, quite frankly, economists don't agree on what originally caused it. The two leading hypotheses are that the Federal Reserve pushed interest rates too low for too long, or that it was caused by a global saving glut (especially in China). Dean Baker, who noticed the bubble back in 2002, explains what he thinks caused it here. Bubble Meter gave a brief summary of his thoughts back in July. Wikipedia lists many possible causes here. And, quite frankly, Bubble Meter has been talking about the bubble and its causes for years.
But none of that matters to you, does it? The truth is you just want an excuse to criticize because you're a troll. That's why you resort to exaggeration in your comments.
We have a process flow that begins with "High Housing Prices"......
ReplyDeleteHAHAHAHAHAHAHAHHAHHHAAAAAAAAAAAAA!!!
It is a bad diagram.
ReplyDeleteWhat is sad is that you probably thought it was good when you "drew" it.
But the implication that you've read a lot of biographies and others have not certainly redeems you; in your own mind.
Why shouldn't the diagram start with "high housing prices"-
ReplyDeleteThat's where the NAR's diagrams start.
Of course for the NAR their diagrams start as "high housing prices" and go to "higher housing prices" and then to "still higher housing prices", etc etc etc.
Sorry you don't like the diagram, please feel free to come up with one of your own. No one is stopping you.
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Lance said...
Incidentally, I don't think they're that 'high'. When you look at what the monthly payments are, they're far lower than they were in the late 70s/ early 80s ... far lower. Are they lower than the bargain prices that were available during the 90s ... Yes, but that's how the market works. It determines the correct price for any given time."
February 16, 2009 10:16 AM
If payments are lower than they were in the 70s/ early 80s, then why oh why do we have this going on...
http://tinyurl.com/bchnuf
Hard-Pressed Consumers Refuse to Read From the Script
By Aline van Duyn
The executives who gathered in a New Jersey hotel in June to discuss the crisis in the mortgage industry had plenty on their minds, but one thing in particular puzzled them:
customers were just not behaving in the ways that lenders had come to expect.
For decades, people had continued to pay down mortgages until their last cent was spent.
Now, increasing numbers were giving up their homes even as they continued to service other debts.
Faced with a plunge in house prices across the US – something that has not happened since the Great Depression of the 1930s – the mortgage industry is already dealing with a surge in the numbers of people defaulting on their payments.
(Why are so many defaulting on their payments if the payments are historically so low? And remember, this story was published back in August 2008, not a few weeks ago.)
.....In previous periods of economic strain, there were well-established patterns to the way people handled their debts. “There was a clear hierarchy of payments,” says Mr Rosenberger. “You paid your mortgage first to stay in your house, paid your auto loan second to get to your job, paid your utilities, and then your phone bill, and other obligations later.”
But there is no legal reason for people to follow this pattern.
........“Many people with debts now have little experience of living in an environment where they can’t just keep borrowing more,” says Dennis Moroney, research director at TowerGroup. “Now, as they are losing value on their homes, they may be less motivated to repay their mortgages.
(So much for the theory that house owners as a whole are a better class of citizen, i.e. they pay their debts and don't ill treat their lenders.)