Quote Originally Posted by 2_Thumbs_Up
Quote Originally Posted by sarbox68
Agreed, tho' I think this situation was a little different. Usually I'm not a fan of bailouts at all... I think the Big 3 automakers should have been allowed to fail into restructuring/rebirth in the 80's, am very happy nobody offered to bailout victims of the 80's and 90's equity implosions even tho' billions evaporated, etc. I'm glad the Fed has (so far) been restrained in not bailing out Lehman, Merrill, AIG (altho' credit line to shore up liquidity has been extended...), Countrywide and I'm sure there will be others.
But the housing market can't be saved. The problem is that people overpaid for houses, not that the prises are coming back down to reasonable levels. Once the bubble pops, there is nothing the government can to do keep the prices from falling. It's like trying to inflate a popped baloon. The best thing to do is to allow house prices to reach market level as fast as possible to shorten the pain.

Also, don't mistake this bailout for helping the homeowners. Short term they may have to move without it, but once they turn over the key to the bank, they are completely debt-free. So long term it's the banks that has to take the big hit. Since there is more homes than ever before no one will be homeless. People will be able to find a place to rent until prices are so low so they can rebuy the houses they handed over to the bank. Ultimately, this bailout is not for the little guy. This is socialism for the rich.
This is a fascinating discussion... a couple of thoughts...

I don't see anything in the Fannie/Freddie deal that's a bailout for homeowners. And I'm adamantly against the various legislation that's being floated that would provide such. Housing values should be allowed to float based on market demand - pure and simple. That's the assumed risk you take on when you make a buying decision, and the government should not assume the role of playing short-stop.

I will correct you on the walk away and be debt free comment. That's a state by state issue. States where homeowners can truly just walk away from a first mortgage and be debt free are in the minority (i.e. California) And even in those cases, they are still legally liable for any loans beyond the original purchase money loans. So all these idiots that sucked out equity in the form of 2nd & 3rd mortgages cannot be saved by simply walking away. They are still liable for those loans... can still be sued for their outstanding value if they default, and if the bank forgives the loan, are liable for the state and federal taxes on the forgiven amount as if it were income. Full bankruptcy is a way out of the loan (not the tax debt if already forgiven...), but Chapter 7 is much harder to file these days, and most will be bounced in to Chapter 13 with a repayment plan.

And that's the states that allow a mortgage holder to walk away unscathed from a 1st... most will take the home in default, sell at foreclosure and then still be able to legally pursue the borrower for the deficiency between what was owed and what they got at the fire sale.

Housing needs to come back into balance... and it will, if the market is just left alone. There has to be a certain amount of liquidity as the credit markets for mortgages do not operate fully distinct from the credit market in general. Liquidity is endemic, and one facet (mortgages) cannot be permitted to completely close down other credit facilities (i.e. small business, commercial, etc.) However, at the end of the day, people still gotta live somewhere -- although there prolly aren't enough people right now to fill overbuilt, less desirable areas that have real demographic issues like Vegas, Florida, Phoenix, central California etc. However, where location rules (ie. where I am in West LA...), rents that stayed stagnant for 4 years while everyone was buying have been climbing dramatically... the beauty of demand pull inflation. Nature sure does love balance...

Oh, and I don't, nor will I ever, subscribe to the Jeremiah perspective. I'm old enough to have lived through the 70s stagflation / gas crisis, the 80s real estate and market crashes, the 90s equity bubble implosion and the 00s crisis in investor confidence. Yes, this is different, as is every unique challenge faced by the global economy. There will be pain involved, but I got no question this too will pass, and will be on to our next episode of rational exuberance... thus is the inherent beauty of the pursuit of a (mostly... or at least in general principal if not perfect application) free market economy.